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CLIENT ALERT
2024 ESTATE TAX UPDATES, A RETURN TO LOWER ESTATE TAX EXEMPTIONS AND THE CORPORATE TRANSPARENCY ACT
IRS ANNOUNCES 2024 EXEMPTION AMOUNTS FOR GIFT AND ESTATE TAXES
Federal Estate, Gift and GST Taxes. In December 2017, Congress doubled the estate, gift and generation-skipping transfer (“GST”) tax exemptions to $10 million per person, adjusted for inflation. For 2024, the inflation-adjusted exemption amount has increased to $13.61 million (or $27.22 million for married couples). Transfers in excess of the exemption amount, during life or upon death, are taxed at a flat 40% federal rate.
Federal Gift Tax Annual Exclusion. For gifts made in 2024, the federal gift tax annual exclusion amount will increase to $18,000 per person ($36,000 for married couples who elect to split gifts).
Virginia Estate Tax. Virginia has no estate tax.
District of Columbia Estate Tax. The D.C. estate tax exemption amount for 2024 has been adjusted to $4,710,000. This amount is not portable or transferable between spouses.
Maryland Estate Tax. The Maryland estate tax exemption amount for 2024 remains at $5
million. This amount is portable or transferable between spouses. Maryland imposes an
additional 10% inheritance tax on property passing at death to beneficiaries who are other than the decedent’s spouse or domestic partner, parents, siblings, lineal descendants or their spouses.
SUNSET OF FEDERAL RATES ON DECEMBER 31, 2025
Unless Congress passes legislation to extend the Tax Cuts and Jobs Act (TCJA) of 2017, the
current increases applied to the federal gift and estate tax exemptions will sunset at the end of 2025, and roll back to pre-TCJA levels on January 1, 2026. Given recent inflation data, we expect the exemptions to roll back to approximately $7 million per person.
For clients who have not used all of their federal gift tax exemption and can afford to do so, they should give serious consideration to completing gifts in 2024 and 2025 in order to utilize any remaining gift tax exemption before the sunset occurs. Preferably gifts would be made to trusts that could benefit a spouse or descendants. One type of trust commonly used to benefit a spouse is called a “Spousal Lifetime Access Trust” or “SLAT” for short. A SLAT is a simple and effective way to gift assets to a beneficiary spouse in order to remove those assets from the donor spouse’s estate. Normally a SLAT is set up as a ‘grantor trust’ for income tax purposes, which provides the grantor spouse with the ability to swap assets in and out of the trust and to take loans from the trust. In addition, the grantor spouse would continue to pay any income tax on the SLAT’s earnings, allowing the SLAT to essentially grow tax-deferred and eliminating the need to file any income tax returns for the trust.
Please let us know if you would like to discuss the upcoming “estate tax cliff.” We can
customize strategies to optimize your estate plan and, if appropriate, use your remaining gift tax exemptions prior to 2026.
WHAT TO KNOW ABOUT NEW REPORTING REQUIREMENTS FOR CLOSELY HELD COMPANIES
Important new rules (the Corporate Transparency Act (CTA)), if upheld, require your attention. Currently, there is a challenge to the constitutionality of the CTA pending in federal district court. Further, new legislation adopted by the House (pending in the Senate) would significantly extend the deadline currently promulgated for existing companies. We will post updates on our website when significant developments occur. Our firm will not file reports on behalf of clients or provide specific advice about the required reports. We urge you to learn about the new rules and consult your accountant or other advisors.
New reporting obligation: Certain companies, including limited liability companies, limited
partnerships, and certain corporations, must file reports with the Financial Crimes Enforcement Network of the Department of Treasury (FinCEN) to identify all “beneficial owners” of the company. This includes persons that either own at least 25% of the company or who exercise “substantial control.” Substantial control may exist for senior officers, those who can remove senior officers, important decision makers, or others. The rules, effective as of January 1, 2024, are set forth on the following website: https://www.fincen.gov/boi. A major purpose of the new requirement is to control the threat of money laundering and other financial crimes; the inapplicability of this threat to your company does not mean that your company does not have to submit a report. The reports will not be made available to the general public.
What companies must file? Generally, companies that were created by filing a document with a state’s secretary of state or similar office must file a report. Many companies will not fit the limited exceptions. Trusts should not have to report; however, where interests in closely held companies are held in trust, many parties to the trust may be treated as beneficial owners of the company.
What is involved? For each “beneficial owner” the company will need to provide the name, date of birth, street address (no PO boxes), the number of a current government ID such as a passport or driver’s license, and an image of that form of ID. Beneficial owners that obtain in advance a unique identifying number from FinCEN may provide that number instead.
Deadlines: For any company in existence before January 1, 2024, the deadline for initial reports will be January 1, 2025 (unless extended by Congress - legislation is under review in the Senate). For companies created after January 1, 2024 but before January 1, 2025, the reporting deadline will be 90 calendar days after notice of the effectiveness of creation or registration of the company. For companies created after January 1, 2025, the deadline will be 30 calendar days after such notice. In addition, any company that has directly submitted beneficial ownership information to FinCEN (as opposed to providing a unique identifying number obtained by the beneficial owner) must report to FinCEN any changes to such beneficial owner’s submitted information within 30 days of such change.
Why this matters: Failure to meet the new reporting requirements can lead to very high penalties - $500 per day with no expiration – and may lead to felony sanctions.
What to do: For companies that already know who their beneficial owners are and that already have the required information about each beneficial owner, this reporting may be simple. For other companies, the determination as to who the beneficial owners are will be very complex; this is true in particular for companies for which interests are held in trust.
How to learn more: FinCEN is expected to make more information available, including the forms that will be used to file reports of beneficial ownership. Please consult the following website for FAQs: https://www.fincen.gov/boi-faqs
WELCOME, SONAL DESAI
We are also pleased to welcome Sonal Desai. Sonal practices in the areas of estate planning and business services and brings a wealth of experience in corporate transactions, litigation and investment banking. She draws on this background to identify and offer solutions to a range of issues in estate planning, trust and estate administration, business succession planning, asset protection, and charitable giving. In addition, she assists business clients with transactional work and planning objectives, drafting and reviewing contracts, and completing various corporate filings. Sonal earned her JD from Harvard Law School, cum laude, and her BA in Economics from The University of Chicago, Phi Beta Kappa.
GIVE US A CALL
If you would like to discuss your estate plan or other legal issues, please reach out to us by email or phone at 703.847.4480, and we would be happy to discuss further.
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