The IRS recently announced that the annual gift tax exclusion is increasing to $17,000, per recipient for 2023. This is the highest the exclusion has ever been. This change is effective on January 1, 2023. This means an individual can gift up to $17,000 per individual without exhausting any of their lifetime gift and estate tax exemption or paying gift tax. Married couples splitting a gift can give a combined $34,000 per person in 2023 without making a taxable gift.
Another significant change, effective January 1, 2023, is the combined increase in gift and estate tax exclusion. It is currently $12.06 million, increasing to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made on death, before being on the hook for gift or estate tax.
Those who used up their lifetime exclusions from 31 December 2022 will now be able to give another $860,000 tax-free from 1 January 2023. Married couples in this situation can make additional gifts of $1.72 million.
Another significant inflation-related change to be aware of: The generation-skipping transfer tax exemption is also increasing. That would be $12.92 million, up from $10 million. This can be useful for an individual who wants to place assets in a trust for the benefit of future generations. In doing so, they can 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 taxes due on distributions or upon the trust’s termination.
It is important to know that the exemption rules have been set until sunset on December 31, 2025 and these figures will return to much lower amounts. The return to the lower amounts will occur when the current Tax Cuts and Jobs Act expires, unless Congress extends it or makes it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels after expiration, as adjusted for inflation.
There are a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. If you have questions about how you can take advantage of the increased tax exclusions, contact an estate planning attorney in your area.
The legal advice in this column is general in nature, consult your lawyer for advice that suits your specific situation.
Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an elder law attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, PC, 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville, 610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at email@example.com