Estate Planning Law Alerts

February 6th, 2023

Increased Exemption for 2023 Creates Estate Planning Opportunities

The Federal estate, gift and generation-skipping transfer (“GST”) tax exemption amounts have increased in 2023 to $12.92 million per individual (up from $12.06 million in 2022).

Accordingly, as of January 1, 2023, an individual may transfer a total of $12.92 million free of Federal estate, gift and GST taxes, and married couples may transfer a total of $25.84 million. This increased exemption can be applied to lifetime gifts, and any unused exemption remaining at death will be available to the individual’s estate.

Absent intervening legislation, the Federal exemption amount will be increased for inflation each year until January 1, 2026, when it will revert to $5 million, adjusted for inflation. IRS regulations now provide that individuals who use the increased Federal exemption amount for lifetime gifts will not be adversely affected by a decreased Federal estate tax exemption after 2025 (i.e., no “clawback” if the exemption amount in the year of death is lower than the amount of exemption used during life). In 2022, the IRS issued proposed regulations that could alter this result for certain lifetime gifts over which the donor retained prohibited interests or powers.

Annual gift tax exclusions are available in addition to the Federal gift tax exemption. Each year an individual may make gifts of any amount up to the annual exclusion to an unlimited number of recipients without using up any part of such individual’s Federal gift tax exemption. Beginning in 2023, the annual gift tax exclusion is $17,000.

When evaluating your estate plan, it is also important to consider recent developments in state laws:

New York

As of January 1, 2023, the New York exemption amount is $6.58 million per individual (up from $6.11 million in 2022). Note, however, that the benefit of the exemption is “phased out” for taxable estates between 100% and 105% of the exemption amount, and eliminated entirely for taxable estates that exceed 105% of the exemption amount. As a result of this “cliff” tax, in 2023, if a taxable estate exceeds $6.909 million, the entire taxable estate will be subject to the New York estate tax. Unlike Federal law, New York does not allow for “portability” of the New York exemption between spouses, so it is important to implement planning that will effectively utilize the New York estate tax exemptions of both spouses.

There is no separate gift or GST tax in New York. However, taxable gifts made by a New York resident prior to December 31, 2025 and within three years of death are taxable in such individual’s estate.

Connecticut 

Beginning in 2023, the Connecticut estate and gift tax exemption will equal the Federal exemption (as adjusted for inflation) (i.e., $12.92 million per individual). Connecticut, like New York, does not allow for “portability” of the Connecticut estate tax exemption between spouses. There is no separate GST tax in Connecticut.

New Jersey

New Jersey imposes an inheritance tax, which is based on the relationship between the decedent and the beneficiary. Transfers to a spouse, child, stepchild or grandchild of the decedent are exempt from inheritance tax. There is no separate estate tax, gift tax or GST tax in New Jersey.

If you have questions about these recent changes, or about other estate and tax planning matters, please contact Linda J. Wank at (212) 826-5546 or [email protected], Barbara E. Shiers at (212) 826-5526 or [email protected] or Adam J. Osterweil at (212) 785-4861 or [email protected], or any other member of the Frankfurt Kurnit Estate Planning & Administration Group.