As the end of 2023 approaches, you may want to consider a few year-end planning strategies that will reduce or eliminate gift and/or estate taxes, both for this year and for years to come.

Federal estate and gift tax lifetime exemption

The federal estate and gift tax lifetime exemption per person has increased to $12,920,000 for 2023 ($13,610,000 for 2024). This means that during 2023 you can make cumulative gifts of up to $12,920,000 during your lifetime ($25,840,000 for a married couple) without having to pay gift tax. These are the gifts made in excess of the annual exclusion. Keep in mind that the exemption amount used during your lifetime is subtracted from the amount available at death.

Now is the time to consider gifting larger amounts to decrease your taxable estate and remove future appreciation from your estate. The increased exemption amount is set to expire on December 31, 2025, at which time the federal estate and gift tax lifetime exemption amount will be significantly reduced.

Annual gifting

A well-planned annual gifting program can remove assets from your estate without gift tax implications. The annual exclusion increased to $17,000 in 2023 ($18,000 in 2024). You can give gifts of up to $17,000 ($34,000 for a married couple) without having to pay a gift tax. This is a per donee annual exclusion, meaning you can make gifts up to the annual exclusion amount, to any number of people annually without gift tax implications.

This is a simple way to remove assets from your estate, as well as future appreciation on these assets. If you plan on making annual exclusion gifts for 2023, make sure to do so by December 31st.

In addition, paying tuition or medical expenses on behalf of an individual directly to an educational institution or healthcare provider is another great way to make a tax-free gift. These tuition and medical payments do not go against your annual gift tax exclusion or lifetime exemption. Tuition payments for pre-school through twelfth grade qualify, as well as payments for higher education.

Gifts to qualified tuition plans (529 plans) do not qualify for the tuition exemption discussed above. However, you can choose to have a contribution made to a 529 plan spread equally over a five-year period. This allows you to use five years of annual exclusions in the year in which the gift is made. For example, an individual may transfer up to $85,000 to a 529 plan in 2023 and elect to have the contribution treated as having been made ratably over a five-year period. If a couple elects to split gifts, the amount contributed can double to $170,000. In some states there is a deduction on your state income tax return for contributing to a 529 plan.

Review estate planning documents

Review all estate documents (wills, trusts, etc.) to make sure that the plan that is currently in place still accomplishes your goals. As stated above, because the lifetime exemption has increased significantly, there may be other planning opportunities available. Estate planning documents should be reviewed frequently and updated when necessary. Life changing events such as marriage, divorce, having children, death of someone mentioned in one of your estate documents or selling your business are examples of reasons to review and update documents.

Consider state transfer taxes

Before taking advantage of the increased federal estate and gift tax exemption, it is important to consider the applicable state estate and inheritance tax laws. There may be state estate tax payable even though no federal estate tax is due.

Now is the time to consider and utilize these planning opportunities. Please reach out to Howard Klein at hklein@citrincooperman.com, Mary Delman at mdelman@citrincooperman.com, or Corey Bell at cbell@citrincooperman.com about your year-end planning needs.