2022 is drawing to a close, and the end of the year will be here before we know it. There are some estate tax law changes on the horizon for 2023 that we wanted to share with you. In 2022, the federal lifetime gift, estate, and GST tax exemption amount was $12,060,000 per person. Here are some things to consider with regard to federal estate taxes for 2023 and beyond:
- As of January 1, 2023, the federal lifetime gift, estate, and GST tax exemption amount will increase to $12,920,000 per person or $25,840,000 for a married couple. This is a substantial increase from 2022, and it provides additional planning opportunities to transfer and protect assets from potential future estate taxes.
- The annual gift tax exclusion rate is set to increase to $17,000 per recipient in 2023. This means that an individual can gift up to $17,000 ($34,000 for a married couple) to any person without incurring a gift tax or having to file a gift tax return (IRS Form 709).
- In addition to gifts, there may be an option to pay unlimited amounts for certain tuition or medical expenses, so long as those payments are made directly to the school or medical provider.
- A variety of planning techniques can be used to leverage the existing exemption prior to a future decrease.
The current federal exemption amounts are not guaranteed to last. On January 1, 2026, the base estate tax exemption amount is scheduled to drop back down to $5,000,000 (adjusted for inflation, this amount will likely fall in the mid to high $6,000,000 range). So, now is the time to act. Individuals and families should contact our Trusts and Estates team here at FMJ to plan and finalize any 2022 gifting under current exemption amounts and determine if additional gifting in 2023 should be considered.
Need another reason to evaluate options and gifts now? Minnesota’s state-specific estate tax exemption amount is currently $3,000,000, and there is no current legislation to change that amount for 2023. The Minnesota estate tax exemption amount has not changed since 2020, and the rates themselves range between 13 and 16 percent. So, this is another important consideration in your estate planning.
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