Tax Law Changes & Considerations

Tax Law Changes & Considerations

During each calendar year, it’s important to review tax law changes and to consider whether certain planning opportunities should be implemented.

The Lifetime Exemption and Annual Exclusion

Effective January 1, 2023, the following federal estate law changes went into effect.

  • The Federal Estate Tax Exemption amount increased from $12,060,000 to $12,920,000
  • The annual gift exclusion increased from $16,000 to $17,000

Taking Advantage of the 2023 Increases

For those who have previously used their Exemptions, they may now gift the newly acquired $860,000 (the amount by which the 2022 exemption of $12,060,000 has increased for 2023).  In addition, they may also increase their annual gifts from $16,000 to $17,000.

2026 Scheduled Decrease of Exemption Provides Current Opportunity

Perhaps you have heard that the Federal Estate Tax Exemption, which has been increasing, including this year (see above), is scheduled to decrease to $5,000,000 at the end of 2025. That would cause an additional estate tax of $3,168,000 for individuals with a net-worth of at least $12,920,00 (or $6,336,000 for married couples with a net-worth of $25,840,00).   For many, the solution is to use the current Exemption while the client still has it.  Gifts to Trusts for children is one approach.  In other cases, an individual who is married, may prefer to make gifts to his or her spouse in a manner in which he or she will maintain access to the gifted assets while his or her spouse is living – a technique known as the Spousal Limited Access Trust (i.e. a “SLAT”).

High Interest Rates Create Opportunities

In addition to the increase in the Federal Estate Tax Exemption and Annual Exclusion Gift amount, the higher interest rates we have been experiencing, which have had a negative effect on several estate planning strategies, have also made several estate planning strategies more appealing.

For example, the Charitable Remainder Trust (“CRT”) and the Qualified Personal Residence Trust (the “QPRT”) are strategies some may now wish to consider.  For CRTs, the higher interest rate results in a larger income tax deduction, which would benefit someone anticipating a liquidation event or a higher-than-normal income year.   For the QPRT, the higher interest rate decreases the amount of the gift because of the contribution of the residence to the QPRT and, therefore, less Exemption is used.

Stay In The Know

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