Understanding Federal Estate Taxes: Navigating the Thresholds and Planning for Your Legacy

This comprehensive guide demystifies federal estate taxes, explaining asset thresholds, includable assets, and proactive planning strategies. Learn about the ties to gift taxes and how to manage potential liabilities effectively with insights from Ament Law Group.



4/19/20243 min read

a close up of a typewriter with a tax return sign on it
a close up of a typewriter with a tax return sign on it

Navigating the complexities of federal estate taxes is a crucial aspect of estate planning that can significantly impact your financial legacy. Understanding what federal estate taxes are, the asset thresholds, what assets are included, and how to proactively plan for them is essential for anyone looking to safeguard their estate for future generations.

What Are Federal Estate Taxes?

Federal estate taxes are levied on the transfer of the "taxable estate" of a deceased person, whether it passes to heirs lawfully or according to the decedent’s will. It's a tax on your right to transfer property at your death and encompasses everything you own or have certain interests in at the time of death.

Understanding the Asset Thresholds

As of 2024, the federal estate tax exemption—the amount below which your estate does not owe any federal estate tax—is very high, standing at $13.61 million for individuals and $27.2 million for married couples in 2024. These numbers have been increasing annually due to inflation adjustments. However, it's crucial to stay updated as these figures can change with new tax laws.

What Is Included in Your Assets?

In calculating your estate for federal estate tax purposes, broadly speaking, everything you own or have interests in at the time of your death is included. This can range from cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets.

The Sunset Provision and Future Tax Liabilities

The current high exemption thresholds are part of the Tax Cuts and Jobs Act of 2017, set to "sunset" or revert back to previous levels (around $5.5 million per individual, adjusted for inflation) after 2025, unless Congress acts to extend or modify the law. This potential reduction in the exemption amount could significantly increase the number of estates subject to federal estate taxes and the tax liability for those estates.

Tying It to Gift Tax Returns and Lifetime Exemptions

The federal estate tax is closely tied to the federal gift tax. To prevent individuals from avoiding the estate tax by giving away their wealth before death, the IRS allows a lifetime exemption for gifts, currently aligned with the estate tax exemption amount. However, every dollar of the exemption used for gifting reduces the amount available to shield your estate from estate taxes.

You're required to file a gift tax return if you make a gift exceeding the annual exclusion amount ($18,000 per recipient in 2024) to anyone other than your spouse. This does not necessarily mean you'll pay a gift tax; it just reduces your lifetime exemption.

Annual Exclusion Gifts

You can give away up to the annual exclusion amount to as many people as you like every year without it counting against your lifetime exemption. In 2024, this means you (and your spouse) could (each) give $18,000 to each of your children, grandchildren, or anyone else, free of gift tax and without tapping into the lifetime exemption.

How Ament Law Group Helps Clients Proactively Plan

At Ament Law Group, we specialize in helping clients navigate the complexities of federal estate and gift taxes. Our approach involves:

  • Strategic Planning: We work with you to develop estate planning strategies that minimize your future tax liabilities, including making use of annual exclusion gifts and leveraging trusts.

  • Keeping Abreast of Changes: Our team stays informed on the latest tax law changes to provide you with up-to-date advice.

  • Tailored Solutions: Understanding that each client's situation is unique, we tailor our estate planning solutions to meet your specific needs and goals.

  • Maximizing Exemptions: We help you maximize your use of both the lifetime exemption and the annual exclusion to reduce your taxable estate.

  • Collaborative Approach: Working alongside your financial advisors, we ensure that your estate plan works in concert with your overall financial plan.

With the potential for significant changes to the federal estate tax exemption on the horizon, proactive estate planning has never been more critical. Understanding how to navigate the complexities of estate and gift taxes can help ensure that your legacy is passed on according to your wishes, with minimal tax liability.

Don't let the complexities of federal estate taxes disrupt the legacy you wish to leave behind. Contact Ament Law Group today. Our experienced attorneys are here to guide you through every step of the estate planning process, ensuring that your estate is prepared efficiently and effectively for any tax liabilities. Together, we can develop a strategy that meets your individual goals and protects your assets for generations to come.