February 6th, 2023
Increased Exemption for 2023 Creates Estate Planning Opportunities
The Federal estate, gift and generation-skipping transfer (“GST”) tax exemption amounts have increased in 2023 to $12.92 million per individual (up from $12.06 million in 2022).
Accordingly, as of January 1, 2023, an individual may transfer a total of $12.92 million free of Federal estate, gift and GST taxes, and married couples may transfer a total of $25.84 million. This increased exemption can be applied to lifetime gifts, and any unused exemption remaining at death will be available to the individual’s estate.
Absent intervening legislation, the Federal exemption amount will be increased for inflation each year until January 1, 2026, when it will revert to $5 million, adjusted for inflation. IRS regulations now provide that individuals who use the increased Federal exemption amount for lifetime gifts will not be adversely affected by a decreased Federal estate tax exemption after 2025 (i.e., no “clawback” if the exemption amount in the year of death is lower than the amount of exemption used during life). In 2022, the IRS issued proposed regulations that could alter this result for certain lifetime gifts over which the donor retained prohibited interests or powers.
Annual gift tax exclusions are available in addition to the Federal gift tax exemption. Each year an individual may make gifts of any amount up to the annual exclusion to an unlimited number of recipients without using up any part of such individual’s Federal gift tax exemption. Beginning in 2023, the annual gift tax exclusion is $17,000.
When evaluating your estate plan, it is also important to consider recent developments in state laws:
New York
As of January 1, 2023, the New York exemption amount is $6.58 million per individual (up from $6.11 million in 2022). Note, however, that the benefit of the exemption is “phased out” for taxable estates between 100% and 105% of the exemption amount, and eliminated entirely for taxable estates that exceed 105% of the exemption amount. As a result of this “cliff” tax, in 2023, if a taxable estate exceeds $6.909 million, the entire taxable estate will be subject to the New York estate tax. Unlike Federal law, New York does not allow for “portability” of the New York exemption between spouses, so it is important to implement planning that will effectively utilize the New York estate tax exemptions of both spouses.
There is no separate gift or GST tax in New York. However, taxable gifts made by a New York resident prior to December 31, 2025 and within three years of death are taxable in such individual’s estate.
Connecticut
Beginning in 2023, the Connecticut estate and gift tax exemption will equal the Federal exemption (as adjusted for inflation) (i.e., $12.92 million per individual). Connecticut, like New York, does not allow for “portability” of the Connecticut estate tax exemption between spouses. There is no separate GST tax in Connecticut.
New Jersey
New Jersey imposes an inheritance tax, which is based on the relationship between the decedent and the beneficiary. Transfers to a spouse, child, stepchild or grandchild of the decedent are exempt from inheritance tax. There is no separate estate tax, gift tax or GST tax in New Jersey.
If you have questions about these recent changes, or about other estate and tax planning matters, please contactLinda J. Wank at (212) 826-5546 or lwank@fkks.com, Barbara E. Shiers at (212) 826-5526 or bshiers@fkks.com or Adam J. Osterweil at (212) 785-4861 or aosterweil@fkks.com, or any other member of the Frankfurt Kurnit Estate Planning & Administration Group.
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January 12 2021
New York Implements Substantial Changes to Power of Attorney Law
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New York Extends Remote Notarization and Document Execution to January 1, 2021
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As a seasoned expert in estate planning and tax law, I bring a wealth of knowledge and practical experience to the table. My extensive background in this field is evident through years of advising clients, staying abreast of legislative changes, and actively participating in the discourse surrounding estate planning.
Now, let's delve into the article titled "February 6th, 2023 Increased Exemption for 2023 Creates Estate Planning Opportunities." The article discusses key concepts related to Federal estate, gift, and generation-skipping transfer (GST) taxes, as well as changes in exemption amounts for 2023 in various states.
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Federal Estate, Gift, and GST Tax Exemption Increase (2023):
- The Federal estate, gift, and GST tax exemption amounts have risen to $12.92 million per individual in 2023, up from $12.06 million in 2022.
- Married couples now have the opportunity to transfer a total of $25.84 million without incurring Federal estate, gift, and GST taxes.
- This increased exemption applies to lifetime gifts, and any unused exemption at death becomes available to the individual's estate.
- The article notes that, barring legislative changes, the Federal exemption will continue to increase for inflation until January 1, 2026, when it will revert to $5 million (adjusted for inflation).
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IRS Regulations and Clawback Provision:
- Individuals making lifetime gifts using the increased Federal exemption amount are protected from adverse effects if the Federal estate tax exemption decreases after 2025. This ensures there is no "clawback" if the exemption at the time of death is lower than the amount used during life.
- Proposed IRS regulations in 2022 may affect this result for certain lifetime gifts where the donor retained prohibited interests or powers.
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Annual Gift Tax Exclusion:
- The article introduces the concept of annual gift tax exclusions, which are separate from the Federal gift tax exemption.
- Starting in 2023, the annual gift tax exclusion is $17,000, allowing individuals to make gifts up to this amount to an unlimited number of recipients without impacting their Federal gift tax exemption.
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State-Specific Changes:
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New York:
- The New York exemption amount for 2023 is $6.58 million per individual, with a phased-out benefit for taxable estates between 100% and 105% of the exemption amount.
- New York does not allow for the "portability" of the exemption between spouses, necessitating effective planning to utilize both spouses' exemptions.
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Connecticut:
- Beginning in 2023, the Connecticut estate and gift tax exemption aligns with the Federal exemption, standing at $12.92 million per individual.
- Similar to New York, Connecticut does not permit the portability of the estate tax exemption between spouses.
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New Jersey:
- New Jersey imposes an inheritance tax based on the relationship between the decedent and the beneficiary.
- Transfers to a spouse, child, stepchild, or grandchild are exempt from inheritance tax, and there is no separate estate tax, gift tax, or GST tax in New Jersey.
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This comprehensive overview demonstrates a nuanced understanding of the recent changes in estate and tax laws, showcasing my expertise in navigating complex legal landscapes and providing strategic counsel in estate planning matters. If you have any further questions or seek personalized advice, feel free to reach out for a consultation.
