Estate & Gift Tax

Federal estate tax (2024)

• Exemption: $13.61M per individual / $27.22M per married couple (unified credit, includes lifetime gifts).
• Rate above exemption: 40%.
• Sunset: The TCJA-doubled exemption reverts to ~$7M in 2026 unless extended.

Annual gift tax exclusion

You can give up to $18,000 per recipient per year (2024) with no gift tax filing required. A married couple can give $36,000 jointly to each recipient. Gifts above this amount file Form 709 and reduce the lifetime exemption.

State estate & inheritance taxes

17 states + DC impose their own estate or inheritance taxes, often with much lower exemptions than the federal level (e.g., Massachusetts at $2M, Oregon at $1M). A family with $4M of assets in MA owes state estate tax despite being far below the federal level.

The current federal estate tax

The 2026 sunset would cut the exemption nearly in half. Estates between $7M and $14M would be exposed to estate tax for the first time in many years. Legislative outcomes uncertain.

The annual gift tax exclusion

You can give up to $18,000 per recipient per year (2024) without filing a gift tax return or using lifetime exemption. A married couple can give $36,000 jointly to each recipient. Multiple recipients = unlimited application: a couple can give $36k to each of 10 grandchildren = $360,000/year gift-tax-free.

Gifts above the annual exclusion file Form 709 but typically don't trigger immediate tax — they just reduce the lifetime exemption.

State estate & inheritance taxes

Strategies for estate tax planning

• Use the annual gift exclusion. $18k × N recipients × Y years = substantial wealth transfer.
• Pay tuition or medical directly. Direct payments to schools or providers don't count toward gift tax.
• 529 plan contributions. Five years of gifts can be front-loaded.
• Irrevocable trusts. Move appreciation outside the estate. Multiple varieties (GRATs, ILITs, SLATs, etc.).
• Family LLCs / partnerships. Discount valuations of fractional interests.
• Charitable trusts. CRT, CRUT — split benefits between heirs and charity.
• Spousal portability. Surviving spouse can use the deceased spouse's unused exemption with proper election.

Common estate planning mistakes

• Assuming "I'm not rich enough" to plan. $5M estates face state estate tax in some states. Future TCJA sunset could expose more.
• Forgetting beneficiary designations. IRAs and life insurance pass via beneficiary forms — bypassing the will entirely.
• Joint ownership confusion. Joint tenancy with rights of survivorship may not produce desired estate result.
• Not updating estate plan after major life events. Marriage, divorce, children, deaths — all trigger needs to update.
• Putting the will in a safe deposit box. Banks may seal access at death; the will should be accessible.

Frequently asked questions

Do I need a trust?

At higher net worth (multimillion-dollar estates), often yes. For modest estates, a well-drafted will may suffice. Always consult an estate attorney.

What's the "step-up in basis" interaction?

Step-up applies regardless of estate tax. Even within taxable estates, heirs get stepped-up cost basis on inherited assets — meaningfully reducing eventual capital gains.

Should I worry about the TCJA sunset?

If your estate is between $7M and $14M, the 2026 sunset would expose you. Consider acceleration strategies (gifts now using current exemption) if you're certain about wealth transfer plans.

Putting this into practice this week

Concepts only matter if they change behavior. Pick the single most relevant action from the above and put it on your calendar — even 15 minutes of action beats hours of further reading without doing anything. The compound benefit of small consistent moves dwarfs the optimization gain from any single decision. Most people fail at finance not because they don't know what to do, but because they don't act on what they already know.

How this connects to the rest of your financial plan

Personal finance is a system, not a list of independent decisions. The choices you make in one area cascade into others: a tax-loss harvest affects your asset allocation, a 401(k) contribution affects your near-term cash flow, a Roth conversion in 2024 affects RMDs in 2050. Sophisticated financial planning is mostly about understanding these second- and third-order effects. The basics that everyone should master first: emergency fund in cash, capture the full 401(k) match, eliminate high-interest debt, max tax-advantaged accounts before taxable, write down a single-page financial plan and review it annually.

Key takeaways

• Understand the mechanics before you optimize the edges. A solid 70% strategy beats a fragile 95% optimization.
• Automate behavior so you don't depend on willpower. Set-it-and-forget-it is the highest-leverage financial habit.
• Match the strategy to your actual situation, not the situation you wish you had or that influencers describe.
• Review annually; ignore daily noise. The market's short-term moves rarely require a response.
• Consistency over decades beats brilliance over months. Time in the market does the work; trying to time it usually destroys it.

The bottom line

The biggest financial wins come from doing the simple things consistently for decades — not from finding the cleverest single trick. Build the foundation first; the optimizations layer on top once the foundation is solid. The investors who end up wealthy aren't the ones who picked the best stocks. They're the ones who saved consistently, kept costs low, took appropriate risk for their horizon, and didn't sell during crashes. Everything else is detail.

Continue your learning at Krovea

Krovea exists to connect every concept on this page to the next one you should read. Use the site-wide search for any term you're unsure about. Run the relevant numbers on a Krovea calculator with your actual situation — projections beat speculation every time. Look up unfamiliar jargon in the A–Z dictionary. Most readers find their first session on Krovea answers one question and surfaces three more — that's how compounding knowledge works. Subscribe to the weekly briefing if you want the highest-impact one topic delivered without the noise of constant financial media.

A final note on financial decision-making

Every concept covered here exists because someone made a costly mistake first and the rule emerged from the consequences. The 401(k) match exists because Americans weren't saving enough. The Roth IRA exists because mid-century retirees got taxed twice on their nest eggs. The wash-sale rule exists because traders abused loss harvesting. Treat each piece of advice not as arbitrary rules to memorize but as the encoded lessons of prior generations of investors. The framework that survives recessions, regulatory changes, and market manias has been stress-tested in ways no individual could replicate. Following the boring conventional wisdom isn't unimaginative — it's the result of selecting for what actually works at scale across millions of investors and dozens of market cycles.

One last thing — when in doubt, do less

The average investor underperforms their own funds by 1–2% per year because of trading mistakes — entering after rallies, exiting after crashes, switching strategies after they stop working. Inaction has a cost, but action has a much bigger one. When you're not sure what to do, the right answer is usually nothing. Pick the next paycheck's contribution, automate it, and look away until tax season.