2023 Taxes: Estate, Gift, etc.

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POSTED ON: March 2, 2023

2023 Taxes: Estate, Gift, etc.:  The new year brings new inflation-adjusted figures for many estate planning exemptions, as reported in the article “2023 Estate, Gift and GST Tax Changes” from mondaq. These should be considered when creating or reviewing estate and tax planning documents.

The annual gift tax exclusion amount is the amount which can be given by any person free of gift tax. This has increased from $16,000 to $17,000 per person, or $34,000 for a married couple.

The federal lifetime gift and tax exemption amount is the total amount an individual can give away during their lifetime or at death free of gift or estate tax. This has increased by $860,000 from $12.06 million to $12.92 million in 2023. A married couple could transfer a combined total of $25.84 million without owing any federal estate tax. The top federal gift and estate tax rate remains at 40%.

The federal Generation Skipping Tax (GST) increases to $12.92 million. This is the tax on transfers to grandchildren or more remote descendants or unrelated individuals who are more than 37 ½ years younger than the person making the gift. The GST tax rate remains a flat 40%.

Unlike the federal estate tax exemption, any GST tax exemption not used on the death of one spouse may not be used by the surviving spouse.

The federal lifetime gift and estate tax exemption was increased by the 2017 Tax Cuts and & Jobs Act and unless Congress acts, the exemption will drop by about a half on January 1, 2026.

If the lower levels of federal estate tax exemption are a concern, now is the time to transfer property to use up all or most of the remaining amount and lock in the higher exemption amount. Treasury Regulations were issued in 2019, the “anti-clawback rule,” which effectively approved this strategy. Gifts designed to lock in the current estate tax exemption can be structured in many ways and funded with a variety of assets. Speak with your estate planning attorney to explore various ways to accomplish this.

The SECURE Act passed in 2019 made substantial changes to the rules governing IRAs and other qualified plans. One of the most notable eliminated the ability of most non-spouse beneficiaries to stretch withdrawals from inherited IRAs or other retirement plans over the beneficiary’s lifetime. Instead, these beneficiaries must withdraw all of the account assets within ten years of the plan participant’s death.

The SECURE 2.0 Act passed in December 2022 as a follow up made further changes to retirement plans. Most notably, those who were born after December 31, 1950 may now defer taking Required Minimum Distributions (RMDs) until age 73, and participants born after December 31, 1958, may defer taking RMDs until age 75.

Estate and tax laws have changed a great deal in recent years, making this an important time to evaluate estate plans made before 2020.

2023 Taxes: Estate, Gift, etc.: - The Law Offices of Claude S. Smith, III

Reference: mondaq (Jan. 12, 2023) “2023 Estate, Gift and GST Tax Changes”

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