2024 Estate and Gift Tax Update

With the new year, it is time to provide an update on gift and estate taxes. While this topic is not always the most exciting for clients to talk about, it is often a critical consideration in how a business or farm operation will pass to the next generation. Much of the increase in net worth over the last year has been in real estate values, which makes estate planning and – in particular – estate tax planning that much more important.

Effectively navigating estate and gift tax rules is an essential component of every estate planning firm. Here in Minnesota, we need to keep our eye on both Minnesota and federal estate and gift tax exemptions, rates, and deductions. We are also getting closer and closer to the sunset of some critical federal exemptions, so now may be the best time to take advantage of these higher exemption limits before these opportunities disappear.

Federal Exemptions for 2024

The good news for 2024 is that the federal estate tax exemption, which is tied to inflation, is increasing to the highest exemption ever. Individuals. The federal estate and gift tax exemption for 2024 is $13,610,000 per individual, or $27,220,000 for a married couple, (increased from $12,920,000 in 2023, or $25,840,000 for a married couple). The top marginal rate remains 40 percent.

The gift tax annual exclusion is also increasing in 2024. The federal annual gift tax exclusion amount is $18,000 per donee for 2024 (which means a married couple can gift up to $36,000 to any individual).

The federal estate tax still also includes provisions for “portability,” which allows couples to double their exclusion amount of the first spouse to die. This allows married couples to protect over $27 million without worrying about federal estate tax liability as long as they timely make this election. We also prefer and recommend that this election is specifically described in our clients’ revocable trusts. These exemption amounts are scheduled to increase with inflation each year until the year 2026 when the amounts are scheduled to revert back to 2017 levels (unless Congress acts sooner).

If the estate tax exemption does revert to 2017, it would be a much smaller $5 million per individual, which would be adjusted for inflation from 2010. Individuals and married couples that do not have a taxable estate under today’s exemption rates, but would if the exemptions roll back, should take advantage of planning now that will allow them to use the tax rules as they exist today.

For example, a farming couple with an estate value (which is at appraised value at the time of death – not what you put on your balance sheet) of $15 million would not have a projected federal estate tax under the exemptions that exist today so long as they have properly done their estate plan. However, if the current exemptions are allowed to expire, that same couple with the same $15 million estate would likely have a projected estate tax in 2026. The amount subject to the tax would be subject to the federal estate tax rate of 40%. That could result in a huge difference in the amount of estate tax just by dying in the wrong year.

The good news is that individuals can take steps now to protect their estates and take advantage of the law as it exists now. Our attorneys have a number of tools ready to deploy for those in this situation. We are actively advising and guiding our clients through these situations on a day-to-day basis.

Minnesota Exemptions for 2024

The Minnesota estate tax exemption remains the same for 2024. The Minnesota estate tax exemption for 2024 is $3,000,000 per individual, or $6,000,000 for a married couple. Tax rates range from 13 percent to 16 percent in 2024, with the top rate being applied to the amount of the taxable estate over $10.1 million.

Unlike the federal estate tax, Minnesota does not allow for portability. This means that a married couple in Minnesota will not get to double their exemption amount to the eventual $6 million amount using the portability feature. Instead, Minnesota couples with estates larger than $3 million (or close to it) will need to carefully plan their estates and utilize credit shelter trusts to maximize their estate tax protection!

For those clients that have estates greater than $6 million, even more planning is required to protect assets. Consider again the farming couple with a $15 million estate. If they plan properly, they could protect $6 million using credit shelter trusts. However, this still leaves up to $9 million of assets exposed to the Minnesota estate tax without more in depth planning with a qualified farm and estate planning attorney.

The good news is that Minnesota still has no gift tax. However, any gifts in excess of the federal gift tax annual exclusion amount made within three years of death are included in the Minnesota estate.

Minnesota farmers and small business owners still benefit from the qualified family farm land and qualified family business deduction. In 2024, this deduction is capped at $2 million.

To qualify for the farm land deduction, the decedent or the decedent’s spouse must have owned the qualifying property for three years before the date of death, and the heirs must own the land – and the land must continue to be classified as agricultural property for property tax purposes – for a period of three years after death. A failure to follow these rules will result in a recapture tax equal to 16 percent of the value of the property. See our blog post, Minnesota Farm Land Deduction Offers Estate Planning Opportunities for Farmers for more information.

To learn more, about estate planning, keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/.

If you’re ready to start being proactive about your estate plan, contact us to get started.

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