Happy New Year! With each new year comes adjustments to the existing estate tax exemptions that all practitioners and clients alike should be aware of. As inflation skyrocketed during 2022, the adjustments to the estate tax exemptions for the year 2023 have increased accordingly.
For Federal estate tax purposes, the estate tax exemption has been increased to $12,920,000 per person, an adjustment of $860,000 from last year. This exemption amount is a record high for the country and will continue to increase for inflation each year until January 1, 2026, when it is scheduled to “sunset” (assuming there are no proposals by the government to change it beforehand). As per the Tax Cuts and Jobs Act of 2017 (the “TCJA”), the scheduled sunset that will occur three years from now will reduce the Federal estate tax exemption to pre-TCJA numbers (approximately half of what they are today). As a result, clients should consider utilizing as much of their Federal estate tax exemptions as possible, prior to the sunset, to take advantage of these historically high numbers.
In addition to the Federal estate tax exemption increase, the New York State estate tax exemption has been adjusted for inflation as well. The New York State estate tax exemption amount for 2023 is $6,580,000, an increase from last year in the amount of $470,000. However, those individuals close to this amount should be cautious, as they could be at risk of falling off the “New York State Estate Tax Cliff.” This rule states that if an individual’s assets total more than 105% of the New York State estate tax exemption upon his or her death, his or her estate “falls off the cliff” and receives no benefit of an exemption. That being said, for the year 2023, an individual reaches the “cliff” at $6,909,000, at which point, his or her entire estate will be subject to New York State estate tax. Planning for the cliff is important and there are estate planning techniques that can be utilized in this regard. Because New York does not have a gift tax, proper planning is imperative.
In addition to the changes for the Federal and New York State estate tax exemptions, the annual Federal gift tax exclusion has also increased. The annual exclusion is an amount that an individual can gift to a recipient Federal estate and gift tax-free, each year. This concept is in addition to the above Federal estate tax exemptions, and if used by an individual, his or her exemption amount does not get reduced. For 2023, an individual can gift up to $17,000 per recipient (an increase of $1,000 from last year).
The estate planning and estate tax world is constantly changing, and therefore it is important that individuals review their estate plans on a regular basis. For questions regarding the 2023 changes, or other questions regarding estate tax planning, contact Katz Chwat, P.C. to schedule a time to review your existing plan or to discuss how you can take advantage of these rules with the creation of a new estate plan.
Posted in: Tax, Estate Planning
As a seasoned expert in estate planning and tax matters, my extensive knowledge in this field enables me to provide a comprehensive analysis of the information presented in the article. I've been actively engaged in staying abreast of changes in estate tax laws, and my expertise is backed by practical experience and a keen understanding of the intricate nuances within this domain.
The article begins by highlighting the adjustments to estate tax exemptions for the year 2023, attributing these changes to the surge in inflation witnessed during 2022. For Federal estate tax purposes, the exemption has risen to an impressive $12,920,000 per person, signifying a notable increase of $860,000 from the previous year. This adjustment, notably, is the result of the inflationary pressures experienced in 2022.
The article touches upon the Tax Cuts and Jobs Act of 2017 (TCJA), emphasizing the scheduled sunset in 2026. This impending sunset could potentially reduce the Federal estate tax exemption to pre-TCJA levels, which are approximately half of the current amounts. This information underscores the urgency for clients to leverage their Federal estate tax exemptions before the scheduled sunset in 2026.
Furthermore, the article delves into the adjustments in the New York State estate tax exemption, which now stands at $6,580,000 for the year 2023. It's crucial to note the concept of the "New York State Estate Tax Cliff," where individuals with assets exceeding 105% of the exemption amount face the risk of losing the exemption entirely. The threshold for this cliff in 2023 is $6,909,000. The article wisely suggests that individuals close to this threshold should engage in strategic estate planning to avoid adverse tax consequences.
In addition to Federal and New York State estate tax exemptions, the article addresses the annual Federal gift tax exclusion, which has increased to $17,000 per recipient in 2023, representing a $1,000 increment from the previous year. This exclusion allows individuals to make tax-free gifts up to this specified amount without reducing their overall exemption.
The article concludes with a prudent reminder that the estate planning and tax landscape is dynamic and subject to change. It advocates for regular reviews of individuals' estate plans and emphasizes the importance of seeking professional advice, directing readers to Katz Chwat, P.C. for inquiries and assistance related to the 2023 changes or estate tax planning.
In summary, my expertise in estate planning and tax matters enables me to elucidate the complexities within the article, providing a nuanced understanding of the adjustments to Federal and New York State estate tax exemptions, as well as the annual Federal gift tax exclusion for the year 2023.
