Insights & Resources

In light of market unpredictability and incoming changes to the gift and estate tax regime, now is a great time to review your estate plan to make sure it reflects your current wishes and takes advantage of wealth transfer opportunities such as those outlined below.
 
Early New Year’s Resolutions for Estate Planning:
 

• Review your estate planning documents to ensure they address your current family and financial situations. If over the past year you sold a substantial asset or business, got divorced or remarried, had a child or grandchild, received an inheritance, or if a child married, it may be time to update your plan. 

 

• Consider using a revocable Trust to avoid probate, which can be a stressful and costly process for your family.

 

• Review beneficiary designations on your retirement plans, life insurance, and joint or “transfer at death” accounts to make sure they coordinate with your estate plan.

 

• Make annual tax-free gifts of up to $16,000 per recipient before the end of 2022 to reduce your taxable estate.

 

• For charitable giving, give appreciated stock instead of cash to avoid incoming capital gains tax.  Create a “donor advised fund” and take a charitable deduction, but defer distributions to charities of your choice until the need for a contribution arises.  Use your annual required minimum distribution from your IRA to make gifts to a charity directly from your IRA and pay no income tax on the distribution.

 
Changes coming in 2023
 
There will be large adjustments (one benefit of inflation) to estate and gift tax exemptions for 2023. 
 

• The Federal estate tax exemption is increasing by almost $1,000,000 to $12,920,000.  Multiply this by two for a married couple.  The amount of an estate in excess of the Federal exemption is subject to a 40% tax. (It is critical to note that the Federal exemption will drop in 2026 to about one-half of that amount.  If your estate exceeds the Federal exemption, you should consider using the “bonus” amount by making gifts before it disappears in 2026.)

 

• Depending upon your state of residence at death, your estate may be subject to state estate tax.  For example, New York’s estate tax exemption is increasing to $6,580,000 for 2023.  Unlike the Federal estate tax, the New York estate tax is a “cliff” tax and, if a New York estate exceeds the New York exemption, the entire estate (not just the amount in excess) is taxed at approximately 10%. It is important for a married couple to structure their assets so that the New York exemption on the first death can be used by setting up a Trust for the surviving spouse as New York is a “use it or lose it” exemption.  The Connecticut estate tax exemption will be $12,920,000 in 2023 and the Connecticut estate tax on the excess amount is 12%.  New Jersey has no estate tax on transfers to immediate family members.  

 

• The annual gift tax exclusion amount will increase from $16,000 to $17,000 in 2023 – this means that you can make annual tax-free gifts of up to $17,000 (or $34,000 for a married couple) per recipient starting in 2023.  In addition, gifts made for tuition or medical care do not count against your Federal exemption if paid directly to a school or medical provider.

To find out what these changes mean for you, we invite you to speak with an attorney in our Trust and Estates department to discuss optimizing your estate plan.