Changes to Estate Tax Laws in 2023

January 18, 2023

As planning begins for the new year, it is important to pay attention to the changes made to estate tax laws going into effect in 2023.

Changes to Federal Gift Tax Exclusions

As of January 1, 2023, the lifetime exclusion amounts- federal gift and estate tax exclusion amount, in addition to the generation-skipping transfer (GST) tax have increased to $12,920,000 per individual. That is an increase of $860,000 per donor. This increase in the lifetime exclusion amounts presents additional gifting opportunities for individuals who have previously maximized their lifetime exclusion amounts.

These lifetime exclusion amounts are set to decrease as of January 1, 2026. The planned reduction will cap the lifetime exclusion amounts at $5,000,000 adjusted for inflation, unless Congress acts to prevent the decrease. The pending reduction in lifetime exclusion amounts presents a “use it or lose it scenario,” so individuals able to maximize their lifetime exclusion amounts should do so now while they still maintain the ability to do so.

In addition, the federal gift tax annual exclusion amount has increased to $17,000 per individual- an increase of $1,000 per gift recipient.

Tax Rates and Federal Estate Tax Portability Unchanged

The highest federal estate tax, gift tax, and GST tax rate will remain at 40%. The highest federal income tax rate for estates and non-grantor trusts is 37% and is applicable to taxable income over $14,450 earned in 2023.

The ability to transfer a decedent’s unused federal estate tax exclusion amount to the decedent’s surviving spouse by filing a federal estate tax return remains in effect in 2023.

Changes to Required Minimum Distribution

On December 29, 2022, the President signed into law the Secure 2.0 Act, including some significant changes to retirement plan contributions. The applicable age for starting required minimum distributions (RMDs) increased to 73 as of 2023 and then to 75 as of 2033. Pre-death RMDs were eliminated from Roth accounts in 401(k) and 403(b) plans after 2023.

If you have questions or concerns regarding these or other changes to estate tax laws and how they may impact your estate planning, please contact the qualified attorneys at Rock, Fusco & Connelly.