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Transferring your legacy

Lifetime Estate and Gift Tax Exemption Will Hit $12.92 Million in 2023

5 Minute Read

The Internal Revenue Service recently announced new inflation-adjusted limits for 2023 that will allow well-off folks to transfer much more to their heirs tax free during life—or at death.

One key gifting change is to the annual exclusion: you will be able to give anyone else (and as many people as you want) $17,000 in gifts in 2023, without worrying about using up your lifetime gift and estate tax exclusion or paying gift tax. That’s up from $16,000 in 2022 and $15,000 in 2021, where it had been stuck since 2018.

The other big change: the lifetime estate and gift tax exemption (also known as the unified credit), will jump to $12.92 million in 2023, up from $12.06 million in 2022. Since couples share their exemptions, it means a wealthy couple that starts making gifts in 2023 can pass on $25.84 million.

Another way to look at it: if they have already maxed out their nontaxable gifts, they can give an extra $1.72 million to their heirs in 2023. That’s in addition to making $34,000 per couple (two times $17,000) in annual gifts to each child, grandchild, sister, brother, niece, nephew, neighbor and friend they’re feeling generous towards.

In addition to making annual $17,000 gifts, you can also pay unlimited amounts for anyone’s tuition or medical expenses, without eating into your lifetime exemption, so long as you make those payments directly to the school or medical provider.

The estate tax is assessed at a 40% rate for the largest estates. But the $12.92 million per-person lifetime exemption is really only a starting point for the very rich when it comes to wealth transfer. A variety of planning techniques involving GRATs and other trusts can be used to leverage that exemption. Even today’s bear market provides planning opportunities.

Note that unless you’re ready to part with assets during your life, that new $12.92 million exemption number is not guaranteed. Under the 2017 Tax Cuts and Jobs Act (a.k.a. the Trump tax cuts), that lifetime exemption will fall by more than half at the start of 2026. 

Whether the estate and gift tax exemption will actually decline so dramatically will depend, of course, on the political control of Congress and the White House come 2025 and 2026 and the budget and deficit pressures of the day. (An early version of the Democrats’ proposed Build Back Better Act would have cut the exemption in half—but that provision was unlikely to win the support of more conservative Senate Democrats.)

Another reason to make lifetime gifts now: as of 2022, 17 states and the District of Columbia levied their own estate or inheritance taxes.

 

This article was written by Janet Novack from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

 

The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.

 

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