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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Compared to world events expected to occur in 2024, upcoming tax law changes are, admittedly, relatively tame.  Perhaps you are looking forward to the Paris Summer Olympics, or hold guarded optimism about your child or grandchild’s big game or musical performance.  You certainly know about the newest season of your favorite streaming television show.  You also understand you must endure coverage of the upcoming presidential election.

This last update for the year covers none of these more exciting matters, but instead provides the relevant tax amounts for estate planning decisions in 2024.  I also provide a brief overview of the federal Corporate Transparency Act taking effect in 2024.

Tax Law Update

Estate planning decisions in 2024 will be impacted by the following tax rules:

  • Annual Exclusion Amount. The annual exclusion amount is the amount that a taxpayer may gift to any one recipient without using any of one’s lifetime federal unified credit towards gift and estate taxes. The annual exclusion amount increases from $17,000 per beneficiary in 2023 to $18,000 per beneficiary in 2024.
  • Federal Unified Credit Amount. The federal unified credit amount is the amount that a taxpayer can transfer to children or other family members free of federal gift or estate taxes.1 The federal unified credit will be $13,610,000 per person in 2024, which is an increase of $690,000 from the federal credit in 2023 of $12,920,000.  The federal estate and gift tax rate remains at 40%.
  • Minnesota Estate Tax Rules. The Minnesota estate tax exemption is the amount of assets that a Minnesota resident2 can pass to family free of Minnesota state estate taxes.  The Minnesota estate tax exemption for deaths occurring in 2024 remains at $3.0 million, with a 13% tax rate on assets more than the exemption.

Estate Planning Points

Planners should keep the following points in mind:

  • Federal Estate Tax Planning: If no legislative action is taken before January 1, 2026, the current unified credit amount enacted under the 2017 Tax Cut and Jobs Act (“TCJA”) will sunset. If that occurs, the federal exemption will be rolled back to the much lower exemption amount in existence before the TCJA.  Adjusted for inflation, the exemption amount will be approximately $7.0 million per person.  Therefore, clients who have assets of more than the future exemption amount of $7.0 million exemption amounts may consider significant lifetime gifts, such as gifts to spousal lifetime access trusts to “lock in” the current federal unified credit amount.
  • Minnesota Estate Tax Planning: Unlike the federal estate tax rules, Minnesota estate tax rules do not incorporate gifts made at least three years before death. Minnesota residents with assets more than $3.0 million should therefore continue to consider tax-wise gifting strategies to minimize the incidence of Minnesota estate taxes.

The Corporate Transparency Act

Beginning in 2024, certain types of businesses, such as corporations, partnerships and LLCs (“reporting company”) must report the identity of its owners with a new federal agency, called the Financial Crimes Enforcement Network (“FinCen”).3  A trust is considered a “reporting company,” and numerous exemptions apply to the “reporting company” definition. 4   However, our firm often advises clients owning closely held business interests to transfer ownership to a trust.  While a trust is not in itself a reporting company, businesses are required to update FinCen promptly whenever a business ownership changes hands.  Reporting companies should therefore establish a plan to update FinCen of business ownership changes on an ongoing basis, including ownership interests that are transferred to family members or to trusts.

1 The federal unified credit is used only if the taxpayer makes gifts in any calendar year more than the annual exclusion amount.

2 A Minnesota estate tax may be due if a non-resident holds real estate or business interests located in Minnesota and the total value of the decedent’s federal assets is more than the Minnesota estate tax exemption amount.

3 A “reporting company” under the Corporate Transparency Act is a type of business that must make a filing with a state’s secretary of state.  The required disclosures to FinCen include the legal names, current mailing address, and social security numbers of the business owners.  The business must report where the entity was legally formed, and its tax identification number.

4 The types of businesses that are exempt from the “reporting company” definition include public companies, non-profit organizations, banks, financial advisory firms, accounting firms, and broker-dealers.  Existing non-exempt existing businesses must register with FinCen no later than December 31, 2024.  Non-exempt businesses created after January 1 of 2024 will have only 30 days to register with FinCen.  If the address of any owner changes, FinCen must be informed of such changes, or else face significant penalties, up to $500 per day.