Increasing Estate and Gift Tax Exemptions: Don’t Miss Out on This Potential Planning Opportunity

Wealth transfers and tax planning go hand in hand. Tax exemptions reduce the amount of money that is subject to taxation. When it comes to estate and gift taxes, an exemption is an important opportunity to shield money from estate tax on transfers at the time of your death and from gift tax during your lifetime. A significant increase in the exemption amount set for 2023 means meaningful estate planning opportunities may be available.

A Brief Overview
In addition to other outcomes, the American Taxpayer Relief Act of 2012 established a permanent estate tax and gift tax exemption. When it was passed, the American Taxpayer Relief Act of 2012 set the exemption at $5,000,000 per person, to be indexed for inflation. Five years later, the Tax Cuts and Jobs Act of 2017 increased this amount to $11,180,000 per person, which has been adjusted for inflation every year since.

Now, for 2023, the new exemption amount is set to increase to $12,920,000 per person. This is an $860,000 increase from the 2022 amount. Additional planning opportunities may be available for some people to transfer wealth and shelter assets from estate taxes.

Annual Gifting
For 2023, the annual gift tax exclusion is set to increase to $17,000 per recipient, an increase of $1,000 over the 2022 amount. You will be able to give up to $17,000 to someone without incurring gift tax consequences or reducing the remaining lifetime exemption. It is important to note that lifetime gifts more than the annual exclusion amount reduce the available exemption amount.

Annual gifting up to the gift tax exclusion amount is a tried-and-true, tax-efficient way to pass wealth to others in addition to any taxable gifts using the exemption. For example, if an individual has already used all the 2022 $12,060,000 exemption, as of January 1, 2023, they could gift an additional $860,000 (using the increased exemption amount) and make as many $17,000 gifts to individuals as they would like without any gift tax issues. Additionally, these gift amounts would be removed from their estate for estate tax purposes.

Limited Time Opportunity
If the Tax Cuts and Jobs Act of 2017 is not extended by Congress, it sunsets at the end of 2025. If this happens, on January 1, 2026, the exemption will return to the 2012 amount of $5,000,000—as indexed for inflation—that was established by the American Taxpayer Relief Act of 2012.

Because of this potential time limit, it’s an important time to review and maximize gifting tax opportunities for 2022 and to consider additional gifting in 2023. Talk to your tax advisor if you feel that this is an opportunity for you.

Work with an Experienced Virginia Estate Planning Team
If you’d like to explore your estate planning goals in conjunction with current gifting needs and these potential tax opportunities, call Wilson Law PLC today at 866-603-5976 to set up a meeting or fill out our contact form and we’ll call you to schedule your meeting.