IRS Announces New Lifetime and Gift Tax Exemptions
The Internal Revenue Service announced new inflation-adjusted limits for 2023 that enable affluent individuals to transfer significantly more wealth to heirs without tax consequences during their lifetime or upon death.
Annual Exclusion Increase
The annual gift exclusion rose from $16,000 in 2022 to $17,000 in 2023. This permits individuals to give gifts of this amount without depleting their lifetime exemption or triggering gift tax obligations. Couples can together give $34,000 annually to any individual without tax implications.
Lifetime Exemption Expansion
The unified credit – representing the lifetime estate and gift tax exemption – increased to $12.92 million per person in 2023, up from $12.06 million in 2022. Married couples may combine their exemptions, allowing them to transfer $25.84 million tax-free.
This translates to an additional $1.72 million in tax-free transfers compared to 2022 for those who have maximized prior gifting strategies, while maintaining the ability to make $34,000 in annual couple gifts to any recipient.
Medical and Educational Payments
Beyond annual exclusions, individuals may pay unlimited amounts directly to educational institutions or medical providers on behalf of others without affecting their lifetime exemption. The critical requirement is that payments must go directly to the provider.
Estate Tax Rate and Future Considerations
The estate tax remains at 40 percent. However, the $12.92 million exemption is temporary. Under the 2017 Tax Cuts and Jobs Act, this exemption is scheduled to sunset beginning in 2026, declining to less than half its current value unless Congress acts.
Political factors, budget constraints, and competing legislative priorities will determine whether this dramatic reduction occurs. Earlier proposals to halve the exemption did not secure sufficient congressional support.
State Estate Tax Implications
As of 2022, seventeen states plus Washington, D.C. maintain state estate and inheritance taxes. For wealthy families, these state-level obligations create additional tax planning considerations, making lifetime gifting strategies increasingly valuable.
Planning Opportunity
The combination of increased exemptions and current market conditions presents meaningful opportunities for wealth transfer planning. Professional guidance is recommended for individuals and families considering estate planning strategies.
If you or a loved one needs assistance with estate planning or tax planning, do not hesitate to contact The Stegall Law Firm for a consultation.
