16 December 2022

Unruh, Turner, Burke and Frees | Wealth Preservation and Asset Protection Section

As required by the current law, the Internal Revenue Service recently announced the 2023 cost of living adjustments for the estate and gift tax exclusion amounts.

These important numbers were discussed in our end of year Newsletter for 2022 (Click to Read Here) and we also reviewed the then current numbers in a great end of year strategy article (Click Here To Read).  If you are interested in protecting your surviving spouse, children or other heirs from the economic effects of taxes, an estate plan that’s too rigid, or the ravages of divorce, creditors or lawsuits, then read on and click those other links to be even better informed.

Gift Tax Exclusion Amount:

The annual gift tax exclusion is the amount an individual may gift to any number of persons without incurring a gift tax or reporting obligation. Recipients are often children or grandchildren but can include any third party such as a son or daughter in law, friends, or other family members.

The Gift Tax Exclusion Amount is currently (for 2022) $16,000 per person and will increase from $16,000 to $17,000 in 2023 (a combined $34,000 for married couples).

The amount you can gift under the current law can adjust annually (it’s dependent on inflation), so an individual who gifted $16,000 to someone in 2022 may now also gift $17,000 to that same person in 2023, without any reporting obligation. For couples (check with your adviser for specifics since they are a bit complicated) that number would be another $34,000).  Also make sure that the 2022 checks are actually cashed in 2022.

However, for any year in which a gift or gifts exceed(s) the annual gift tax exclusion amount a 709 gift tax gift is required to be filed by the individual or married couple making the gift in order to report it to the IRS.

Gifts could also be made of a home, car, or even a business interest.  However, hard to value assets might require an appraisal or other form of valuation that must also be disclosed on a 709 gift tax return.

 Estate Tax Exclusion Amount:

The estate tax exclusion is the amount an individual can transfer estate or gift tax-free during his or her life AND upon his or her death. The Estate Tax Exclusion Amount will increase from $12,060,000 to $12,920,000 in 2023 (a combined $25,840,000 for married couples).

For exampleif a single person with two children passes away in 2023 owning $12,920,000 in assets (the exact amount of the exclusion), then the deceased person's two children will inherit the full $12,920,000 as no estate tax is owed.

However, if that same single person with two children passes away in 2023 owning $20,000,000 in assets. The decedent's estate will owe tax on the assets owned that exceeded the $12,920,000 estate tax exclusion ($20,000,000 - $12,920,000 = $7,080,000). The current estate tax rate is approximately 40% which means the decedent's estate will owe estate taxes in the amount of $2,832,000 ($7,080,000 x 40%).

NOTE:  See our article that explains portability and what happens if one spouse passes away leaving the other spouse all of the assets (there’s no tax on the surviving spouse but very specific actions are required to protect the children or heirs.  Click here to read more.

The content of this article is intended to provide a general guide to the subject matter. Consult Unruh, Turner, Burke & Frees or other legal or accounting advisers about your specific circumstances and issues.

I know, that sounds like lawyer “CYA” but the specific facts of your situation really matter and the IRS doesn’t want you to “beat the system” so they make it pretty hard and they look for ways to catch mistakes.

For help contact your estate planning lawyer and or tax advisers to review the specific rules and your specific facts.

If you ALREADY KNOW THAT YOU WANT OUR HELP CALL 610.933.8069 to speak with one of our Client Relations Managers.

 

 

David M. Frees, III
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Attorney, Speaker and Author
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