Will You Need to Worry About Estate Taxes in 2024? A Look at What’s Coming in the New Year

The turn of the year is a good time to consider whether you need to adjust your estate plans. If you’ve had changes in the family or in your personal situation or goals, then chances are some of your documents need updating. When changes in the law affect the outcome of your plans, that is also often time to make an adjustment.

Estate tax is one area many people may now need to start taking into consideration, but other changes for 2024 could also affect your plans.

Why Estate Tax May Soon Be an Issue

Florida effectively abolished the state estate tax in 2005, and the exemption level for federal estate taxes has been set at a high level for some time. Most people without $10 million or more in assets haven’t been thinking about estate taxes in recent years.

But that may need to change.

The provisions that have escalated the federal tax threshold to new heights are set to expire at the end of 2025. So while estates valued at less than $13.61 million will be exempt from estate tax in 2024, the exemption amount is set to return to lower levels soon, unless Congress extends the higher threshold. Congress might instead lower the threshold, and make the exemption available to far fewer families. That means many more people may need to start developing strategies to reduce potential estate tax liability.

What is Estate Tax?

Estate tax is a form of taxation on inheritance. When someone passes away the property they leave behind (even if it’s in a revocable trust) can be taxed if it’s valued over a certain amount.

Heirs and beneficiaries aren’t taxed directly, as they would be with an inheritance tax, but any amount they receive will be reduced by the taxes paid by the estate, so they effectively lose that money. The rate tends to run between 20% to 40%, so the amount lost to estate tax can be considerable.

Strategies to Avoid Estate Tax

There is no way of knowing what will happen after 2025, but with Congress looking for new sources of revenue, it ‘s quite possible that they will lower the exemption amount on estate tax. Not very long ago, the threshold was $1 million or less, so this affected many people, particularly those with family businesses.

The bottom line is that to be safe, it is best to start considering strategies to reduce potential estate tax liability just in case. Options include gifting strategies, retitling assets, and creation of one or more irrevocable trusts. Because of the rise in interest rates, certain estate planning strategies that had limited appeal in recent years may now offer substantially more benefits.

Find Out Whether Your Plans Need Adjusting for 2024

The changes in interest rates, cost of living adjustments, and other factors can affect your estate plan in a variety of ways. You may need to adjust contributions or disbursements to keep on track with your goals.

If you get in touch, we can schedule a review of your estate plans.