By: Elizabeth Boyette
Many of our clients are concerned about avoiding estate taxes on their assets that they leave to beneficiaries at death. Fortunately, current regulations allow individuals to make testamentary devises to heirs up to a certain cumulative amount without paying taxes. This is called the estate tax exemption. These exemptions are indexed annually for inflation, with the 2023 exemption at $12.92 million for an individual and $25.84 million for a married couple. This estate tax exemption is a useful tool utilized by high-net-worth individuals to meet their financial goals, but unfortunately is soon to change.
Throughout history, the estate tax exemption has slowly risen with inflation from $1 million in 2002 to $11.4 million in 2019. 2010 provided a one-year respite from estate tax and introduced the Deceased Spousal Unused Exclusion, which allows the surviving spouse to benefit from the unused tax exemption of the deceased spouse by transferring the unused exemption from the deceased spouse to the surviving spouse upon filing Form 706 with the IRS.
Lifetime annual gifting is another strategy to reduce your overall estate that may be taxed at death. In 2023, an individual can give up to $17,000 to as many individuals as they like during the tax year without incurring gift taxes or affecting their lifetime gift tax exemption. This is called the annual gift exclusion. If an individual gives more than the exclusion amount, then the excess should be reported to the IRS on a gift tax return, and that excess gift amount will also count against the lifetime gift tax exemption.
The current exemption amount outlined in the Tax Cuts and Jobs Act of 2017 is set to sunset in 2026 with unknown consequences to follow. Although we do not know what will change exactly, it is estimated that the estate tax exemption will likely be cut in half to around $5-7 million. Should this be the case, the once remote possibility of many individual’s estates being liable for estate taxes at death now becomes much more likely. Contact Jackson Law today for more information on how we can help with your estate planning needs as the sunset of the current lifetime gift tax exemption quickly approaches. Email me at elizabeth@jacksonlawnc.com, or call us at (919)438-2005!
With this knowledge, now you can Rest Easy.
