Estate Tax Exemption Increased for 2023

The IRS has recently announced that the 2023 Estate Tax Exemption will be $12.92 million. This exemption represents the amount of a decedent’s estate (including previously taxable gifts) that is exempt from estate tax. The increased exemption is $860,000 more than the 2022 amount and is the result of the rising high interest rates reflected in the rapid growth of the consumer price index.

2023’s larger exemption presents the opportunity for married couples who coordinate their estate planning to protect $25.84 million from estate taxes. Additionally, the exemption amount is unified with the federal gift tax exemption – utilization of this exemption through life-time gifting reduces the amount of exemption available at death. The highest estate or gift tax rate remains the same at 40% next year.

Additional gifting opportunities

For taxpayers who have previously used all of their available exemption through life-time gifting, the increase in 2023 means that they can give an additional $860,000 next year without paying gift tax, while married couples can give a combined $1.72 million.

Future of the Exemption Amount

Since 2012, the estate tax exemption has been indexed for inflation and updated annually. At that time, the base was set to $5 million, but this base was doubled in 2017. The increased base is effective for tax years 2018 through 2025, and after 2025 will again be determined using the $5 million base.

Consideration should be given to estate planning to utilize this larger exemption amount before 2026.

Annual Gift Tax Exclusion

Taxpayers who make annual gifts can exclude $17,000 of present interest gifts in 2023; this amount is an increase of the 2022 amount of $16,000. Present interest gifts are gifts which the donee can enjoy – generally cash or similar property, and gifts made to certain trusts.

For gifts to non-US citizen spouses, taxpayers can gift up to $175,000 in 2023 before utilizing their Estate Tax Exemption. While gifts to US citizen spouses are unlimited, gifts to non-citizen spouses are not.

For more information, or to discuss the implications of these changes and planning opportunities available to you, contact your Anchin Relationship Partner.