The gift tax annual exclusion and the gift and estate tax exemption increased significantly for 2023. Effective January 1, 2023, the following amounts may be helpful in considering estate planning options for the new year:
- Gift Tax Annual Exclusion – $17,000 (increased from $16,000).
- Gift and Estate Tax Exemption – $12.92 million (increased from $12.06 million).
Gift Tax Annual Exclusion
The gift tax annual exclusion is the amount you may give each year to any number of individuals and certain types of trusts tax-free and without using any of your gift and estate tax exemption. The annual exclusion amount for 2023 is $17,000 ($34,000 per married couple). That means you could give up to $17,000 (or a married couple could give a total of $34,000) in annual exclusion gifts to any child, grandchild or other person. Making those annual exclusion gifts is a very effective way to reduce your taxable estate.
Gift/Estate Tax Exemption
The gift and estate tax exemption is the amount you can transfer during your life or at your death without incurring gift or estate tax. For 2023, the gift and estate tax exemption is $12.92 million ($25.84 million per married couple). Lifetime gifts that do not qualify for the annual exclusion described above will reduce the amount of gift and estate tax exemption available at death. Importantly, unless further legislation is enacted, the current gift and estate tax exemption amount will be reduced by approximately one-half at the end of 2025 (estimated at $6.2 million per individual and $12.4 million per married couple).
Clients can take advantage of the increased exemption amounts by making lifetime gifts, either outright to an individual or in a trust. It is important to consider making gifts to reduce estate tax before the exemptions decrease at the end of 2025. For those who have already used their gift and estate tax exemption in prior years, the increase from 2022 to 2023 provides an opportunity to make additional lifetime gifts to avoid or reduce estate tax.