Current hyper-inflation brings a silver lining in 2023. The annual gift tax exclusion and gift & estate tax lifetime exclusion are scheduled to increase next year.
These are welcome changes for those who want to engage in wealth transfer planning.
Gift Tax Annual Exclusion
Effective January 1, 2023, the gift tax annual exclusion will increase from $16,000 to $17,000 per recipient. This means you can gift this amount to as many people as you wish in 2023 without using up your lifetime gift and estate tax exemption or paying gift tax. Married couples who gift-split may gift a combined $34,000 per person in 2023 without making a taxable gift.
Combined Gift and Estate Tax Lifetime Exclusion
Another big change, effective January 1, 2023, is an increase in the combined gift and estate tax exclusion. It is rises from $12.06 million to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exclusion is the total amount of gifts a person may make during one’s lifetime, including transfers made at death, before being on the hook for gift or estate tax.
Those who used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.
Generation-Skipping Transfer Tax Exemption
Another significant inflation-related change to be aware of: The generation-skipping transfer tax exemption is also going up. It will be $12.92 million, up from $10 million.
This may be useful for an individual who wishes to place assets in a trust for the benefit of future generations. In doing so, they may allocate their generation-skipping transfer tax exemption to this trust. The result is that these assets can remain in the trust for multiple generations without any gift, estate, or generation-skipping tax due on distributions or upon the trust’s termination.
However, readers should remember that these figures will revert to much lower amounts when the current Tax Cuts and Job Act expires on December 31, 2025, if Congress does not extend it or make it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels upon expiration, as adjusted for inflation.
The lawyers at Vasiliadis Pappas have a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. Contact us to learn how you can benefit from these and other changes that go into effect in the coming year.