Trusts & Estates Insider
Our perspective and in-depth analysis of developments and matters of interest in estate planning and trusts and estate litigation.
Inflation is High – But From an Estate Planning Perspective That’s Not Entirely Bad News
Due to the effects of high inflation - the federal gift and estate tax exemption has increased significantly from $12.06M per United States citizen or permanent resident in tax year 2022, to $12.92M per U.S. taxpayer in 2023. This provides married couples with $1.72M of additional tax exemption to utilize on lifetime wealth transfers. This clearly presents a tremendous planning opportunity to high net-worth taxpayers who would like to reduce their federal estate tax exposure, and allow their beneficiaries to receive a greater inheritance. Additionally, we anticipate announcements in the coming weeks regarding similar inflation based pro-rata adjustments for applicable state estate taxes in states like New York, Connecticut, Massachusetts and others.
Furthermore, the annual federal gift tax exclusion has increased incrementally from $16K per donor/per beneficiary to $17K in 2023. These exclusions represent tax-free gifts which can be made every year and do not impact a taxpayer’s lifetime unified credit. For example: a married couple with 3 children and 6 grandchildren could make $306K in tax-free gifts to their family members in 2023 (or to certain types of trusts for their family’s benefit) and each year going forward. For taxpayers with taxable estates – making these types of gifts annually are often a no-brainer and can be a powerful strategy to reduce ones total estate tax exposure.
As a bonus, discounts which apply to certain estate planning strategies like Qualified Personal Residence Trusts (QPRT) are better in a higher interest rate environment. So now might be a be a good time to consider estate planning with high-value homes with potential for appreciation.
Please keep this information in mind - as this generous federal exemption is currently scheduled to sunset at the end of 2025 and may then be reduced by fifty-percent. Feel free to reach out to our Trusts and Estates team if you have any questions.
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