Speaker 1: Hey there, I'm estate planning attorney Paul Rabelais and in this video, I'm going to let you know both what the new 2024 tax rules are that relate to estate planning and I plan to give you some insight on how future rules and trends should make you think about your own personal estate planning. So first, let me simply share the new rules and the new numbers. For people who died in 2023, the federal estate tax exclusion amount was $12.92 million. This means that someone who died in the year 2023 could pass along assets totaling $12.92 million in value without being subject to the 40% federal estate tax. For most Americans, the 2023 $12.92 million exemption is a big number and most Americans tell me, boy, Paul, I wish I had that problem where my estate was worth more than $12.92 million. But in 2024, the estate tax exclusion was, as scheduled, adjusted for inflation so that for people who pass away in 2024, the federal estate tax exclusion is a whopping $13.61 million, which represents an increase of $690,000 over 2023. And in a moment, after I share with you the rest of the new IRS numbers that relate to estate planning, I'll go over how people should think about estate planning over the next few years. Now on to the federal gift tax. From a numbers standpoint, the federal annual gift tax exclusion increases from the $17,000 amount for 2023 to $18,000 for 2024. And in a moment, I'll share how many people get tripped up when it comes to this gift tax exclusion amount. And since we're sharing new 2024 numbers, I'll also mention the new numbers where estates and trusts must pay income tax at the top 37% rate. For 2023, the cutoff for the maximum 37% rate was $14,450 of taxable income for the trust or estate. And for 2024, estates and trusts will pay income tax at the top 37% rate once the taxable income exceeds $15,200. And later I'll explain how many people get confused when it comes to applying the trust income tax rules. So now with the announcement of the new numbers out of the way, let's address in general how you should think about estate planning in 2024 and for the next few years after that. First, for the people who do have the largest estates and are worried about the 40% going to the federal government when they pass away instead of their family. Those folks should note that we're quickly approaching the tax sunset that is scheduled to occur even without congressional intervention on January 1, 2026, when the estate tax exclusion amount will revert back to the 2017 estate tax exclusion amount of around $5 million plus applicable inflation adjustments. So here's what the wealthy need to know. According to the rules that are on the books now, you have until December 31, 2025 to take advantage of this larger estate tax exclusion amount that essentially gets cut in half on January 1, 2026. For example, for 2024, if you're married, you and your spouse could each use your 2024 $13.61 million exemptions to pass along $27.22 million in value to the next generation without a nickel of gift or estate tax ever having to be paid on those transfers. You see, you can use your estate tax exemption either during your lifetime by gifting assets away or you can use it when you die. I can virtually guarantee you that subject to Congress changing the rules, many wealthy couples will take advantage of the higher 2024 and 2025 estate tax exclusion amounts by transferring in excess of $27 million of assets to their descendants and it's likely that millions of dollars of estate tax will be avoided. You see, if they don't use their estate tax exclusion amount while it's high and they leave those assets in their estate, then when they die, they'll only be able to shield maybe $7 million of assets because the exclusion amount is being reduced. Bottom line here, it's great that you have a large estate, so just make sure you understand your options now so you can make an informed decision on whether you would want to take advantage of these higher exemptions before they go away. Now let's shift over to the gift tax, which as I stated, the annual gift tax exclusion amount has increased from $17,000 to $18,000. So while we're addressing the gift tax, allow me to clarify areas where the public often gets confused about the federal gift tax. Probably the biggest area of confusion when it comes to the $18,000 gift tax amount is that many people mistakenly believe that if you make a gift to someone in excess of $18,000 in 2024 or beyond, that someone's got to pay some tax, but that's not right. Let me give you an example. Let's say in 2024, you make a gift to your daughter in the amount of $218,000. Maybe you wrote her a check, maybe you gave her a piece of real estate worth $218,000, or maybe you gave her shares of stock worth $218,000. And let's keep your spouse out of it for now if you're married. By giving your daughter $218,000, you certainly gave more than the $18,000 gift tax limit. But the good news is that nobody, not you, not your daughter, owes any tax. A gift, regardless of the amount, is not subject to income tax. And by making a gift in excess of $18,000 in 2024, you, the donor, are required to file a federal gift tax return, also known as IRS Form 709, letting the IRS know that you made the gift, but no tax will be due with the return. You'll merely be showing the IRS that by making a gift of $218,000 in 2024, you used $200,000 of your $13.61 million estate tax exclusion amount. And if, unfortunately, you die later in 2024, you'll only be able to leave $13.41 million free of the 40% federal estate tax instead of $13.61 million. You see, the gift and estate tax are unified. You can give or donate $18,000 to as many people as you want to, children, grandchildren, friends, other relatives, every year. In fact, if you're married, you and your spouse can donate up to $36,000 to as many people as you want in 2024 without any tax consequences at all. And if you happen to give someone more than $18,000 in 2024, no one owes any tax, but you just need to report to the IRS that you've used part of your $13.61 million estate tax exclusion amount, which you'll probably never use because your estate just isn't worth that much. Now, let's finally discuss the income tax consequences that estates and trusts have. From an income tax standpoint, trusts and estates generally get taxed at a much higher rate than individuals get taxed. For example, for 2024, married taxpayers filing jointly will pay income tax at the top rate of 37% once their income for 2024 exceeds $731,200. While trusts and estates will pay income tax at the rate of 37% once the trust or estate income for 2024 exceeds only $15,200. But a fairly common misunderstanding among people thinking about setting up a revocable living trust to avoid the court and attorney involved probate process when they die is they'll say, I don't want to create a revocable living trust because if the trust has more than $15,200 of income, that income will be taxed at 37%. But what those people fail to realize is that a revocable living trust for income tax purposes is what's called a grantor trust. This means that all the trust income gets reported on the personal return of the person who set up the trust. A revocable living trust is a grantor trust which falls under one of the exceptions under the rule that a trust has to file its own income tax return. Ok enough about taxes and how they relate to estate planning, let's now discuss some of the common non-tax issues that ordinary people like to address when they are putting their legal affairs in order. So one of the first things that people tell me they want to accomplish when they talk to me about putting their estate legal affairs in order is they'll say something like, I want to avoid probate. And people who emphasize wanting to avoid probate have often gone through a difficult court and attorney involved probate when a family member of theirs, such as a parent or spouse, died. Sometimes they'll say something like, the probate was a mess when so and so died. I don't want to put that through my survivors when I die. Setting your estate up to avoid probate often includes setting up your revocable living trust because assets in your trust when you die avoid going through the probate. Probate is necessary when you have assets in your name that are frozen when you die and third parties require court orders before they will release accounts or other assets to your heirs. A second issue people bring up to me from around the country when they talk to me about our national estate planning law firm helping them get their estate legal affairs in order is they say something like, we'd really like our children's inheritance to stay with them if they get divorced after we die. They often follow that statement up with something like, look Paul, we like our new son-in-law but these days you just never know how your children's marriages will turn out. So we want to protect our children just in case they get divorced in the future. You see, the moment your children inherit from you, the inheritance is theirs and theirs only. But if they mix up or commingle the inheritance with other assets they have with a spouse, they could lose half or more of the inheritance. By leaving your children's inheritance in a trust for them, it's far less likely that their inheritance will get mixed up with other assets they have with a spouse. If your child subsequently gets divorced, they keep their trust and your child and their spouse split other assets they acquire together. And a third non-tax estate planning issue that I focus on with everyone around the country that I help is that distribution schedule. How assets will be distributed after death, particularly for married couples. Too many times I've heard people say something like, you know Paul, mama died and left everything to daddy or mama died and left everything to our stepdad. And then they say, our dad or stepdad, whichever applicable, met a new woman and is leaving everything to his new wife or companion. And so the result of that is the children of the first spouse to die, in this case, mama's children, wind up never seeing a penny of an inheritance. So when I speak with our national law firms clients about this, we make sure that we give those couples all the available distribution options so that they can make informed decisions about not only how to take care of their spouse, but also protect future inheritance rights of the children. So there you have it. The gift tax exclusion amount is increasing to $8,000. The estate tax exclusion amount is increasing to $13.61 million. And there are still a number of non-tax reasons to work through when you are trying to make things easy for your family in the future and make sure all of your estate planning decisions are well thought out and executed so that you can create a positive and impactful inheritance. So if you feel you need to get your estate legal affairs in order, you can click the link in the description below and request a no-expense Zoom estate planning design meeting with me where we'll explore what you want to accomplish from an estate planning perspective and figure out the most efficient way to accomplish it through our national estate planning law firm, America's Estate Planning Lawyers. Now go ahead and have a great day.