By: David J. DelFiandra, Esq.
Higher inflation in 2023 has negatively impacted the economy, resulting in higher prices for many goods and services. One benefit to higher inflation is the increase of the exclusions applicable to the Federal Estate and Gift Tax due to inflation adjustments.
Although not yet official, the IRS is expected to announce the following inflation adjustments affecting the Federal Estate and Gift Tax for 2023:
- Annual Gift Tax Exclusion – Increase from $16,000 per year to $17,000 per year.
This is the maximum amount that any person can gift to any other person, per year. If it is a present interest gift, then the donor is not required to file a Federal Gift Tax Return and does not utilize any of their lifetime exclusion amount (discussed below).
- Lifetime Exclusion Amount – Increase from $12,060,000 to $12,920,000 per person.
This is the amount you can offset against taxable gifts during your lifetime and assets in your Federal taxable estate at death. For example, a married couple who makes no taxable gifts during their lifetime could have up to $25,840,000 ($12.92M x 2) in assets at death and not pay Federal Estate Tax. For every dollar of assets above that amount, a 40% Federal Estate Tax will apply.
- January 1, 2026 – Lifetime Exclusion Amount decreases to $6,800,000 per person.
The current Federal Estate and Gift tax law was implemented as part of the Tax Cuts and Jobs Act of 2017. Under the current law, the Lifetime Exclusion Amount will decrease to $5,000,000 per person, as adjusted for inflation. Current inflation projects that amount to be $6,800,000 per person. However, Congress could always implement a new Federal Estate and Gift tax law with a lower exclusion amount.
In 2019, the IRS and Treasury Department promulgated IR-2019-189, which prevents the claw back of any lifetime gift made after December 31, 2017, and before January 1, 2026, when the exclusion is decreased, or possibly sooner if Congress acts. Thus, individuals who take advantage of the current increased exclusion amounts will not be adversely impacted if the exclusion later decreases.
Considering the looming possibility of a change in tax law, individuals should revisit their estate plans and consider lifetime gifting strategies to take advantage of the current increased exclusion.
For assistance on navigating through the adjustments affecting estate and gift tax or to learn more about estate and gift tax, please contact David J. DelFiandra at firstname.lastname@example.org or 412.261.1600 for an initial consultation. David is a Partner with Leech Tishman and Chair of the Estates & Trusts Practice Group, and is also a member of the Nonprofits & Tax-Exempt Organizations and Tax Groups.
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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in business restructuring & insolvency, construction, corporate matters, employment & labor, estates & trusts, intellectual property, litigation & alternative dispute resolution, and real estate. In addition, the firm offers a wide range of legal services to clients in the aviation & aerospace, cannabis, emerging cyber technologies, energy & natural resources, healthcare, and hospitality industries. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York, Philadelphia, Sarasota, and Washington, D.C.