Estate Tax Updates for 2023

Happy New Year! With each new year comes adjustments to the existing estate tax exemptions that all practitioners and clients alike should be aware of. As inflation skyrocketed during 2022, the adjustments to the estate tax exemptions for the year 2023 have increased accordingly. 

For Federal estate tax purposes, the estate tax exemption has been increased to $12,920,000 per person, an adjustment of $860,000 from last year. This exemption amount is a record high for the country and will continue to increase for inflation each year until January 1, 2026, when it is scheduled to “sunset” (assuming there are no proposals by the government to change it beforehand). As per the Tax Cuts and Jobs Act of 2017 (the “TCJA”), the scheduled sunset that will occur three years from now will reduce the Federal estate tax exemption to pre-TCJA numbers (approximately half of what they are today). As a result, clients should consider utilizing as much of their Federal estate tax exemptions as possible, prior to the sunset, to take advantage of these historically high numbers. 

In addition to the Federal estate tax exemption increase, the New York State estate tax exemption has been adjusted for inflation as well. The New York State estate tax exemption amount for 2023 is $6,580,000, an increase from last year in the amount of $470,000. However, those individuals close to this amount should be cautious, as they could be at risk of falling off the “New York State Estate Tax Cliff.” This rule states that if an individual’s assets total more than 105% of the New York State estate tax exemption upon his or her death, his or her estate “falls off the cliff” and receives no benefit of an exemption. That being said, for the year 2023, an individual reaches the “cliff” at $6,909,000, at which point, his or her entire estate will be subject to New York State estate tax. Planning for the cliff is important and there are estate planning techniques that can be utilized in this regard. Because New York does not have a gift tax, proper planning is imperative. 

In addition to the changes for the Federal and New York State estate tax exemptions, the annual Federal gift tax exclusion has also increased. The annual exclusion is an amount that an individual can gift to a recipient Federal estate and gift tax-free, each year. This concept is in addition to the above Federal estate tax exemptions, and if used by an individual, his or her exemption amount does not get reduced. For 2023, an individual can gift up to $17,000 per recipient (an increase of $1,000 from last year). 

The estate planning and estate tax world is constantly changing, and therefore it is important that individuals review their estate plans on a regular basis. For questions regarding the 2023 changes, or other questions regarding estate tax planning, contact Katz Chwat, P.C. to schedule a time to review your existing plan or to discuss how you can take advantage of these rules with the creation of a new estate plan.

Posted in: Tax, Estate Planning