Here at the beginning of 2024 (okay, a month in) as you consider this year’s goals, might I posit “Save money on taxes” as one of them?
We are facing another tax filing season (Jan 29 – April 15), and the dread of owing the government. It’s a real thing for a lot of Oklahoma City people. But, surprisingly, most of my clients never even consider that they could reduce what they owe with a little foresight.
But if you did put saving on your taxes on your resolutions list, there are a lot of things my team and I here at RLH Tax Services, LLC could do to position you to make that goal come true.
Now, naturally, it’s my job — I would even say my joy — to help you on this front. And if that’s something you’re ready to think about, let’s include some time for that at your tax filing appointment. Speaking of, have you grabbed a time on my calendar?
So, let’s start here: There are big shifts on the horizon for those with estates. Certain estate planning moves are optimal to make in 2024 and 2025, specifically regarding the unified tax credit, before the clock runs out on them.
Let me paint the full picture…
5 Estate Planning Strategies for Oklahoma City Taxpayers in 2024
“The time to repair the roof is when the sun is shining.” — John F. Kennedy
The unified credit, which offsets gift and estate taxes, was significantly lower pre-Tax Cuts & Jobs Act (TCJA) (5.49 million per individual). This meant that an individual could leave or gift up to 5.49 million without incurring federal estate or gift tax. For married couples, this amount was effectively doubled, allowing a combined exemption of nearly 11 million dollars.
The TCJA, which took effect on January 1, 2018, dramatically increased this exemption amount. It doubled the pre-existing limits, raising the exemption to approximately 11.18 million per individual and about 22.36 million for married couples. The substantial increase allowed individuals and couples to transfer significantly more wealth without incurring federal estate or gift taxes.
(It’s important to note that these figures are subject to inflation adjustments and slightly increase each year.)
The key takeaway here is that the TCJA provisions offered a much more generous unified credit for better money-saving estate planning moves.
So, what’s changing?
Right now, the unified credit stands at a substantial 12.92 million per individual.
However, when the provisions for the unified credit expire at the end of 2025, this figure is expected to drop to around 7 million (subject to inflation adjustments).
Note that the IRS has provided reassurance: Gifts made while the higher unified credit is in effect will not be retroactively included in the estate for tax purposes, even if the unified credit is reduced in subsequent years.
→ This change makes 2024 a critical year for savvy estate planning, so you can capitalize on these higher exemptions while they last.
Let’s explore FIVE strategies to take advantage of the higher unified credit limit.
(Also, keep in mind that while these are effective approaches, each comes with its nuances and should be tailored to your unique situation. We’re here if you want to talk more personalized strategies.)
Estate Planning Strategy #1: Maximize gifting now — Consider gifting portions of your estate now, rather than waiting. This strategy can significantly reduce your estate’s tax liability.
Remember, you can gift up to 18K for 2024 per recipient without incurring gift tax. Larger gifts can still be tax-efficient under the current higher unified credit limit.
Example: John, with his 10 million estate, is making the most of this by gifting 18K this year to various family members, strategically reducing his taxable estate while also spreading a little bit of joy.
Estate Planning Strategy #2: Reassess your estate plan — If you haven’t reviewed yours recently, now is the time. Make sure it aligns with the current tax laws and takes advantage of the higher unified credit. This might involve setting up trusts, re-evaluating asset distributions, or other estate planning tools.
Estate Planning Strategy #3: Consider charitable contributions — Charitable giving can be an effective way to reduce your taxable estate. While not all donations offer the same tax benefits, with the right advice, the contributions you do make could have big tax advantages. If you have plans to support some charitable causes through your estate, doing so now will be especially advantageous with your taxes.
Example: David and Emily are reducing their 5 million estate’s taxable value by donating appreciated assets directly to charity.
Estate Planning Strategy #4: Leverage trusts — Trusts can be a powerful tool in estate planning, offering control over asset distribution and potential tax benefits. While there are ongoing administrative considerations, the benefits of a well-structured trust often outweigh these aspects, providing long-term advantages in your estate planning. Determine how trusts can fit into your strategy, especially in light of the current tax laws.
Example: Sarah decided to use a Spousal Lifetime Access Trust (SLAT). She’s not only leveraging the current higher unified credit but also ensuring her business legacy is secure.
Caution: Each type of trust serves unique purposes and requires careful selection to align with your goals.
Estate Planning Strategy #5: Plan for state taxes: It’s important to remember that state taxes can play a significant role in your estate planning as well. They often get overlooked in the shadow of federal taxes. Many states have lower estate tax thresholds compared to the federal exemption, which can substantially affect estate planning.
For example, if you’re in a state with a 2 million estate tax exemption and your estate is valued at 4 million, you’re clear of federal taxes but not state taxes. Strategic steps, like gifting or trust formation, can reduce your estate’s value to fall below the state’s threshold, saving your heirs a significant amount in state taxes.
These estate planning strategies highlight the crucial steps you can take in 2024 to maximize the benefits of the current tax laws. Determine to make some plans now so that you (and your heirs) are positioned better with your estate tax-wise.
Also, remember that estate planning is complex, and every situation unique. A good Central Oklahoma estate planner can help you navigate tax code and tailor a plan that maximizes your savings.
For now, we’re here for you if you want to start that conversation:
Helping you make timely tax moves,
Robin Harris
