IRS Rev. Proc. 2022-38 outlines the increase, for inflation, to the Federal Estate Tax Exemption for 2023, which is $12,920,000.00 per individual (compared to $12,060,00.00 in 2022), or $25,840,000.00 for a married couple (compared to $24,120,00.00 in 2022). The new 2023 levels represent an increase from 2022 of $860,000.00 and $1,720,000.00, respectively.
The Federal Estate Tax Exemption represents the amount a decedent can pass to his or her heirs without the estate having to pay an estate tax. “Unified” with the Federal Estate Tax Exemption is the Lifetime Gift Tax Exemption, which allows a person to make gifts during his or her lifetime up to the Federal Estate Tax Exemption. In other words, a person’s Federal Estate Tax Exemption is reduced, dollar for dollar, by the person’s total lifetime gifts (subject to the Annual Gift Tax Exclusion, as described below).
Having a comprehensive estate plan, and in the case of a married couple, a coordinated estate plan, is important when it comes to fully utilizing the available exemption amounts. Such an estate plan may include a gifting plan and/or documentation that ensures the unused exemption of one spouse can be transferred, or ported over, to the surviving spouse.
It is important to note that the Federal Estate Tax Exemption is expected to “sunset,” or be reduced, after 2025. Unless Congress intervenes, the exemption amount is expected to fall to as low as $5,000,000.00 per individual in 2026. This means that over half the current exemption amount will disappear, overnight. For those who are wealthy enough to be impacted by the reduction to the exemption, an increase in gifting prior to the sunset may be advisable. Gifting before 2026 will give a person the opportunity to utilize some or all of the current exemption that would otherwise be lost.
Annual Gift Tax Exclusion
The IRS also increased the Annual Gift Tax Exclusion from $16,000.00 in 2022 to $17,000.00 in 2023. This exclusion amount represents the amount a person can gift to any one person during the calendar year without having to file a federal gift tax return. And if the gift does not exceed the exclusion amount, there is no reduction to the person’s Federal Estate and Lifetime Gift Tax Exemption. Even if a gift exceeds the exclusion amount, and a gift tax return is required, no gift taxes would be owned unless the person has fully exhausted his or her Federal Estate and Lifetime Gift Tax Exemption.
New York Estate Tax Exemption
New York residents are subject to a New York estate tax. For 2023, the New York State estate tax exemption is $6,580,000.00 per individual, as compared to $6,110,000.00 in 2022. New York does not have a gift tax, and lifetime gifts do not reduce the state exemption.
If you are interested in estate planning that achieves asset preservation, which includes limiting or avoiding estate tax liabilities, you should consult with an experienced Estate Planning Attorney.
By Wayne R. Carrabus, C.P.A., Esq., at Futterman, Lanza & Pasculli, LLP with offices in Smithtown, Bay Shore and Garden City, NY, and clients throughout metro New York. He concentrates his practice on Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate and Estate Administration and Estate Taxes.