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Ultra-wealthy Americans can soon protect more assets from federal estate taxes, the IRS announced this week.
Starting in 2023, individuals can transfer as much as $12.92 million to heirs, during life or at death, without triggering a federal estate-tax bill, up from $12.06 million in 2022.
Since married couples may share exclusions by electing portability, their combined limits are double, allowing transfers of up to just about $26 million for 2023, in comparison with just over $24 million this 12 months.
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Next 12 months, there’s also a better annual limit on tax-free gifts. In 2023, filers may give away $17,000 per recipient without reducing their $12.92 million lifetime exclusion. That is up from this 12 months’s $16,000.
These increases are a part of the agency’s annual inflation adjustments, affecting federal income tax brackets, standard deductions and dozens of other provisions.
Whether the estate-tax exclusion is $12.06 million or $12.92 million, it won’t likely make a “material difference,” said Adam Brewer, a tax attorney with AB Tax Law in San Diego and Honolulu. “But definitely, every bit helps, so why not benefit from it?”
With the stock market down in 2022, many are sitting on lower-value portfolios and the upper exclusion next 12 months may provide opportunities for “more aggressive” estate-planning techniques, akin to shielding wealth via trusts, he said.
“It just looks as if almost a no brainer,” Brewer said.
Estate-tax exclusion may fall after 2025
The estate-tax exclusion has roughly doubled since Republicans’ signature tax overhaul in 2017. Without further motion from Congress, the supply will sunset after 2025, leaving a limited window to leverage the upper limits.
Still, many affected taxpayers have worked with advisors to arrange for the “potential risk,” in line with Brewer. “We’re talking about ultra-wealthy individuals here,” he said, and these families won’t have a big chunk of their wealth hurt by “the whims of Congress.”
No matter what laws happens, 2023 is shaping as much as be a “very big 12 months for estate planning,” Brewer added.