Estate, Gift, and Generation Skipping Taxes for 2023

The new year brings new inflation-adjusted figures for many estate planning exemptions, as reported in the article “2023 Estate, Gift and GST Tax Changes” from mondaq. You should consider these when creating or reviewing estate and tax planning documents.

The annual gift tax exclusion amount is the amount that any person can give free of gift tax. This has increased from $16,000 to $17,000 per person or $34,000 for a married couple.

The federal lifetime gift and tax exemption amount is the total amount an individual can give away during their lifetime or death, free of gift or estate tax. This has increased by $860,000 from $12.06 million to $12.92 million in 2023. A married couple could transfer a combined total of $25.84 million without paying federal estate tax. The top federal gift and estate tax rate remains at 40%.

The federal Generation Skipping Tax (GST) increases to $12.92 million. This is the tax on transfers to grandchildren, more remote descendants, or unrelated individuals over 37 ½ years younger than the person making the gift. The GST tax rate remains a flat 40%.

Unlike the federal estate tax exemption, any GST tax exemption not used on the death of one spouse disappears. That is, the surviving spouse may not use it.

Congress and the President increased the federal lifetime gift and estate tax exemption with the passage and signature of the 2017 Tax Cuts and & Jobs Act. Unless Congress acts subsequently, the exemption will drop by about a half on January 1, 2026.

If the lower levels of federal estate tax exemption are a concern, now is the time to transfer property to use up all or most of the remaining amount and lock in the higher exemption amount. The US Treasury Department issued regulations issued in 2019, the “anti-clawback rule,” which effectively approved this strategy. Gifts designed to lock in the current estate tax exemption can be structured in many ways and funded with various assets. Speak with your estate planning attorney to explore multiple ways to accomplish this.

The SECURE Act passed in 2019 substantially changed the rules governing IRAs and other qualified plans. One of the most notable eliminated the ability of most non-spouse beneficiaries to stretch withdrawals from inherited IRAs or other retirement plans over the beneficiary’s lifetime. Instead, these beneficiaries must withdraw all account assets within ten years of the plan participant’s death.

The SECURE 2.0 Act passed in December 2022 as a follow-up made further changes to retirement plans. Most notably, those born after December 31, 1950, may now defer taking Required Minimum Distributions (RMDs) until age 73, and participants born after December 31, 1958, may defer taking RMDs until age 75.

Estate and tax laws have significantly changed in recent years, making this a critical time to evaluate estate plans made before 2020.

Reference: mondaq (Jan. 12, 2023) “2023 Estate, Gift and GST Tax Changes.”