THE #1 CLIENT INTEREST IS 

ESTATE PLANNING

Approximately 70% of the US Adult Population

does NOT have an adequate estate plan.*

The rate of inflation has reached a historic high, but it has also created estate planning opportunities that some of your clients may not have anticipated. Both the annual gift tax exclusion and the lifetime gift and estate tax exclusion amounts are adjusted for inflation each year, so when the rate of inflation is higher, the increases in these amounts are also greater. Now is a great time to remind your clients of the opportunity to take advantage of these tax saving opportunities.


Annual Gift Tax Exclusion


Clients who are interested in making an outright gift to a loved one can take advantage of the annual gift tax exclusion, which was increased to $17,000 for 2023 (up from $16,000 in 2022), to make tax-free gifts of money or property up to the exclusion amount directly to as many loved ones (including non family members) as they wish. Married couples can each give $17,000 per recipient; for example, they can provide tax-free gifts of $34,000 to each of their children. Annual exclusion gifts do not count against your clients’ lifetime estate and gift tax exemption amount, and the recipients will not owe any income or gift taxes on the amount they receive. Remind your clients that their gifts of money or property must be of a present interest, that is, they must transfer full title with no limitations to avoid disqualifying the gift from eligibility for the annual exclusion. Annual exclusion gifts are a use-it-or-lose-it opportunity each year and do not accumulate from year to year, so the gifts must be made by the end of 2023, or the chance to use the 2023 annual exclusion will be lost.


Lifetime Gift and Estate Tax Exclusion Amount


The basic exclusion amount for decedents dying in 2023 and the generation-skipping transfer tax exemption amount for 2023 is $12.92 million (up from $12.06 in 2022). The increase in the basic exclusion amount means that an individual will be able to transfer an additional $860,000 ($1.72 million for married couples) free of transfer tax liability in 2023. Gifts exceeding the annual exclusion amount will be counted against their lifetime exemption amount. These gifts are considered taxable gifts, but your clients can simply file a gift tax return and use part of their exemption amount as a credit, so they will not owe any gift tax unless the total value of all gifts made exceeds their remaining basic exclusion amount. The lifetime estate and gift tax exemption amount is set to be cut in half in 2026 in the absence of a change in the current law, so time is of the essence for clients who are interested in taking advantage of the current high exemption amount.


Remember the Anti-clawback Regulations


Under 2019 regulations issued by the Internal Revenue Service (IRS), a special rule was adopted allowing an estate to compute its estate tax credit using the greater of the basic exclusion amount (BEA) applicable during a taxpayer’s lifetime and the BEA applicable on the taxpayer’s date of death, ensuring that taxpayers will not be adversely impacted if they take advantage of the increased BEA by making lifetime gifts and then die in a year with a reduced BEA. The final regulations also clarified that the increased BEA is a use-or-lose benefit, available only to the extent that a taxpayer actually uses it by making gifts during the period in which the increased BEA amount is available. Proposed regulations released in April 2022 deny the benefit of the special anti-clawback rule to completed gifts that are treated as testamentary transfers for estate tax purposes and are included in the donor’s gross estate (includible gifts). The exception to the special rule, which requires the estate tax credit to be calculated using the BEA applicable on the taxpayer’s date of death (and thus a lower exemption amount after 2025), is likely to apply to grantor retained annuity trusts, qualified personal residence trusts, promissory note transactions, and possibly preferred partnership techniques. However, the anti-clawback rule would continue to apply to transfers includible in the donor’s gross estate where the taxable amount is 5 percent or less of the total amount of the transfer valued on the date of the transfer. The proposed regulations would also claw back gifts into a decedent’s estate made by the decedent less than eighteen months prior to the death of the decedent.


We Can Help!


No one is happy about the high rate of inflation, but you can help your clients turn lemons into lemonade by strategic gifting. Please contact us if we can help your clients determine if they should take advantage of the estate planning opportunities provided by the historic increases in the exclusion amounts, especially in light of the sunset of the doubled gift and estate tax exemption amount at the end of 2025.

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This information is for educational purposes only and cannot be considered legal advice, nor does the receipt of this information create an attorney-client relationship. This is an advertisement. 

* CNBC 2022 Survey