If you are searching for a silver lining in the midst of this year’s surging inflation, I’ve got it! The IRS recently announced substantial increases to the federal estate and gift tax exemption and the gift tax annual exclusion for 2023.
As of January 1, 2023, the federal estate and gift tax exemption will increase $12.92 million. The exemption is the amount that each individual can pass to his or her heirs gift and estate tax free. In 2023 married couples can together avoid estate tax on the first $25.84 million gifted or owned at death. Wow!
In addition, as of January 1, 2023, the gift tax annual exclusion will increase to $17,000. The annual exclusion is the amount that each person can gift to any other person without paying gift taxes, utilizing exemption, or even filing a gift tax return.
These increases result from inflation adjustments built into the tax code.
These increases are good news – reduced estate taxes! In addition, for those who have (or may someday have) a federally taxable estate, these increases also present an important opportunity for estate tax planning. You may wish to consider making gifts of assets in 2023 – either annual exclusion gifts or taxable gifts (e.g., gifts in excess of the annual exclusion amount). Lifetime gifting is an important strategy to minimize estate taxes due after death.
Consider also that the federal estate and gift tax exemption may decrease substantially in the future. It is expected to revert to its pre-2017 amount of $5 million, adjusted for inflation, at the end of 2025, when the current tax law sunsets. This means that the opportunity to make big taxable gifts may have a deadline of December 31, 2025. If you wish to gift, you may need to do so before then.