From 2020 to 2023, there was a high degree of uncertainty in the future of tax and estate planning. With significant elections and mixed predictions, estate and tax advisors demonstrated flexibility and creativity in the solutions they presented to clients – some of whom took immediate action, some of whom waited to see what may happen.

In 2024, with a split in legislative control and less of a chance the laws will change, the outlook is more predictable and there are more opportunities for wealthy individuals and families. Here are 5 key changes and planning opportunities related to gift, tax, and retirement planning.

Increase in estate, gift & GST exemptions and exclusions for 2024

The estate tax, gift tax, and GST exemption amount increased to $13.61 million in 2024. The annual gift tax exclusion will increase from $17,000 to $18,000 in 2024. The annual gift tax exclusion for gifting to a non-citizen spouse increased from $175,000 to $185,000. Trusts and estates are taxed in the highest bracket for ordinary income over $15,200.

Planning for the decrease of estate and gift tax exemption

Since 2018, we have benefitted from a historically high estate and gift tax exemption. This amount is set to be reduced at the end of 2025. Currently, individuals can transfer $13.61 million. On January 1, 2026, these amounts will “sunset” and revert to the 2017 $5 million exemption, adjusted for inflation. The timeframe for the “sunset” may be extended or adjusted depending on complex political factors, but high-net-worth individuals need to do some planning in the event the exemption reduces.

Planning opportunities to maximize the exemption include completing gifts now, transferring interests in real estate or LLCs, and utilizing trusts to transfer wealth while maintaining access to income. Spousal Lifetime Access Trusts (SLATs) allow married individuals to utilize the remaining exemption while retaining access to income during their spouse’s lifetime. Irrevocable grantor trusts allow individuals to make complete gifts with the grantor paying taxes on trust income and allowing assets to continue to appreciate outside the individual’s estate. For the charitably inclined, trusts allow for charitable distributions with family members benefitting from income over time or a remainder interest in the trust assets.

For individuals and families who have utilized most or all of their exemption, a sale to a trust with a promissory note may help to reduce their overall estate. When properly structured, the sale is not treated as a taxable gift and the assets sold to the trust are excluded from the estate of the grantor.

RMD date required by SECURE Act 2.0 raised in 2023

Beginning January 1, 2023, the Required Minimum Distribution (RMD) date changed based on the age of the account owner:

  • If the original account owner was born in 1950 or earlier, the original account owner must begin to take RMDs starting at age 72.
  • If the original account owner was born between 1951 and 1959, the original account owner must take RMDs starting at age 73.
  • If the original account owner was born in 1960 or later, the original account owner must take RMDs starting at age 75.

The RBD is the date when the original account owner must begin to receive distributions from their retirement account.

RMD changes for Roth-designated accounts 

Lifetime RMDs for Roth-designated accounts in an employer-sponsored plan are no longer required, for tax years after December 31, 2023. For account owners who turn 73 in 2023, Roth account RMDs must still be made by April 1, 2024, for these employer-sponsored plans. So effective 2024, owners of all Roth accounts (employer plans and IRAs), will not have to take lifetime RMDs until after the death of the original account owner.

Post-death RMDs

If the original account owner dies afterthe RBD, then beneficiaries (other than certain Eligible Designated Beneficiaries (EDB) – spouses, disabled beneficiaries, chronically ill beneficiaries, minor children of the account owner (until age 21), and beneficiaries not more than 10 years younger than the owner) must take out annual RMDs, with a full payout by the end of the 10th year following the account owner’s death. If the account owner dies beforethe RBD, then beneficiaries (other than those EDBs) must withdraw all benefits inherited from qualified plans and IRAs no later than the end of the 10th year following the original account owner’s death.

EDBs continue to benefit from the ability to receive retirement distributions over their life expectancies. It is critical to review retirement plan beneficiary designations to ensure you are maximizing the benefits of a longer RMD period and avoiding heavy penalties for missing RMDs. The rules regarding inherited IRA distributions are complex. This update only addresses some basic rules. It is critical that beneficiaries work with their estate planners for the correct guidance.

Minimizing income with qualified charitable distributions

RMDs are ordinary income and can push individuals into a higher tax bracket for a particular calendar year. Individuals who do not need the income may benefit by making a qualified charitable distribution (QCD) from their IRA. A QCD allows charitably inclined individuals to direct up to $105,000 from their IRA each year (at age 70.5 and older) to a public charity. The result is the individual’s RMD and taxable income reduces by that amount.

IRS announced focus on high-income taxpayer compliance

In September 2023, the IRS announced its priority to focus on high-income taxpayer compliance. Funding from the Inflation Reduction Act (IRA) of 2022, along with AI technology, the IRS intends to target high-earning taxpayers. The IRS has dedicated dozens of revenue officers to focus on taxpayers with income over $1 million and more than $250,000 in tax debt. The IRS intends to target partnerships with over $10 million in assets by monitoring the returns and identifying inconsistencies on returns.