New Year, New Estate & Gift Tax Exemptions

As we turn the calendar to 2023 and the holiday gift-giving season is behind us, now is the time to consider this year’s changes to the estate and gift tax exemption. You may recall from earlier columns that the estate and gift tax exemption is the amount of money or assets the government lets you give away over your lifetime and at your death, combined, without having to pay estate or gift taxes.

This year, the federal estate and gift tax exemption for U.S. citizens has increased from $12.06 million to $12.92 million, meaning that you can give away an additional $860,000 in the aggregate to non-spouse family members  and loved ones free of federal estate and gift tax. Of course, the exemption amount is “automatically” scheduled to “sunset” on December 31, 2025, reducing the federal estate and gift tax exemption to $5 million indexed for  inflation (about $7 million in 2023 dollars).

The federal annual gift tax exclusion amount, which is the amount of money or assets you can give to each person each year without that gift counting towards your $12.92 million exemption, has increased from $16,000 per donee to $17,000 per donee in 2023. That means that a U.S. couple can gift $34,000 together in 2023 to a non-spouse family member or loved one without using up any of their  federal estate and gift tax exemption.

In addition, the New York estate tax exemption has also increased. For 2023, the exemption is almost $6.58 million, up from $6.11 million, allowing almost another $500,000 to pass free of New York estate tax from a New York resident to non-spouse family members or loved ones at death. Remember, while New York does not have a gift tax, it does require that gifts made within three years of death be brought back into the decedent’s estate for purposes of computing the New York estate tax. Also, New York still does not recognize “portability” (the ability of a surviving spouse to use the portion of the estate tax exemption the first spouse to die did not), while federal law does permit portability of a spouse’s unused federal estate and gift tax exemption.

Due to the uncertainty in the federal estate and gift tax laws, and in view of the fact that New York State “brings back” into one’s estate gifts made within three years of death (and doesn’t recognize portability), it makes sense to consider making gifts to family members and loved ones sooner rather than later, especially if you expect those assets to appreciate.

This article appeared in the February 2023 issue of Stroll Lloyd Harbor.