New Lifetime and Gift Tax Exemptions for 2023

The Internal Revenue Service Today announced new inflation-adjusted limits for 2023 that will allow well-off individuals to transfer much more to their heirs tax free during life—or at death.
New Lifetime and Gift Tax Exemptions for 2023

There is big news from the IRS for people who use gifting as part of their estate planning: in 2023, the annual gift exclusion increases from $16,000 to $17,000, without needing to use up lifetime gift and estate tax exclusion or paying a gift tax, according to the article “Lifetime Estate and Gift Tax Exemption Will Hit $12.92 Million in 2023” from Forbes.

The “unified credit,” or lifetime estate and gift tax exemption, will also jump to $12.92 million in 2023, up from $12.06 million in 2022. Couples may combine their exemption, so a wealthy couple making gifts in 2023 can pass along $25.84 million.

Here is another way to look at what this change means. If you’ve already maxed out on non-taxable gifts, you can give an extra $1.72 million to heirs in 2023, in addition to making $34,000 per couple ($17,000 x two) in annual gifts to your child, grandchild, siblings, niece or nephew, or anyone you’re feeling generous towards.

In addition to making these generous $17,000 gifts, you can also pay an unlimited amount towards someone else’s tuition or medical expenses without any impact to your lifetime exemption. An important detail: the payments must be made directly to the school or the medical provider.

The estate tax is still 40%, but the $12.92 million per-person lifetime exemption is just one of many strategies used to transfer wealth. Others include the use of GRATs and other trusts to leverage the exemption.

However, keep in mind the $12.92 million lifetime exemption is not forever. Under the 2017 Tax Cuts and Jobs Act, the lifetime exemption will sunset in the start of 2026, and the decrease will be more than half its current value. Whether the estate and gift tax exemption will actually drop so dramatically depends on the politics of Congress and the White House and the budget and deficit pressures of the year.

There’s another reason to make these lifetime gifts sooner rather than later: as of 2022, seventeen states and the District of Columbia still have state estate taxes and/or inheritance taxes. For wealthy families, these exemptions can make a big difference in estate tax liabilities.

Take advantage of the new lifetime and gift tax exemptions for 2023. Speak with your estate planning attorney in Davie, Florida for help with your planning process.

Reference: Forbes (Oct. 18, 2022) “Lifetime Estate and Gift Tax Exemption Will Hit $12.92 Million in 2023”

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