CSG Law Alert: Tax Cost Changes Could Give High Net Worth Individuals Additional Opportunities to Transfer Wealth

Inflation adjustments for 2023 could provide more opportunities for high net worth individuals to transfer wealth to their loved ones without paying gift or estate tax, regardless of how much they’ve gifted in previous years. The basic exclusion amount will increase 7.13%, from $12.06 million to $12.92 million per person.

The basic exclusion amount, also known as the estate tax exemption, is the amount of wealth that a person can gift during their lifetime or upon death without paying gift and estate taxes. A married couple can therefore make lifetime gifts or transfers upon death up to $25.84 million without paying the gift or estate tax.

In addition, the annual gift tax exclusion will also increase in 2023, from $16,000 to $17,000. The annual gift tax exclusion is separate from the estate tax exemption. This means that every individual can gift up to $17,000 annually to any person without incurring gift tax or utilizing any of his or her estate tax exemption. Married couples can gift up to $34,000 to any individual. This exclusion provides individuals with more flexibility in transferring wealth without using their estate tax exemption.

Further, the annual exclusion for gifts made to a noncitizen spouse will increase from $164,000 to $175,000 next year.

These inflation adjustments permit additional tax-free gifts. For any individual who used all of their estate tax exemption this year, they can make additional gifts next year of $860,000 (the difference between the 2023 and the 2022 estate tax exemptions) plus gifts of $17,000 to any individual without incurring any gift taxes. Using the estate tax exemption for lifetime gifting removes the value of the gifted assets and future appreciation from the donor’s gross estate. However, these adjustments are only for the federal estate and gift tax, and some states have their own wealth transfer taxes that should be considered.

As a reminder, the Tax Cuts and Jobs Act of 2017 will sunset at the end of 2025. If Congress does not extend the current increased estate tax exemption, the estate tax exemption will revert to $5 million, indexed for inflation, on Jan. 1, 2026.

As seen in ROI-NJ.

In light of the forgoing, if you would like to discuss your personal situation and options, please contact your CSG law attorney or the author of this alert.

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