The estate and gift tax exemptions have undergone substantial changes from 2022 to 2023 due to certain inflation adjustments provided under the current law. These exemptions, sometimes collectively referred to as the “unified credit,” represent the amount an individual may give either during their lifetime or at death before any gift or estate taxes will be assessed against them or their estate.
The unified credit in 2023 will be $12,920,000, up from $12,060,000 in 2022. Since the credit can be shared between spouses, when used correctly, a married couple can transfer up to a combined $25,840,000 without incurring gift or estate tax. This represents an increase of $1,720,000 from 2022 to 2023.
Like the unified credit, the generation-skipping transfer tax exemption, which represents the amount that can be left to a “skip generation” (i.e., a generation that is two or more generations younger than the transferor) without incurring generation-skipping transfer tax, has increased to $12,920,000. Unlike the unified credit, the generation-skipping transfer tax exemption is not shareable with a spouse, making it more important for individuals to fully utilize their exemption either during their lifetime or at the time of their death.
Lastly, the annual federal gift tax exclusion (the amount an individual may gift each year without incurring gift tax or depleting any portion of their gift tax exemption) has increased from $16,000 to $17,000, allowing an individual to gift $17,000 to each donee/recipient per calendar year. If the transferor is married and their spouse agrees to “split” each gift with them, the exclusion amount is effectively doubled to $34,000 per donee/recipient.
For further information concerning these changes and how they may affect your personal estate plan, please contact John Tullio at (216) 472-4619, or by email at [email protected].