2023 Planning Tips: Take Advantage of Increased Exemption Amounts While They Last


3 min read

As the new year quickly approaches, now is an excellent time for individuals and families alike to consider various changes coming in 2023. Estate planning strategies such as gift exchanges, asset swaps, timely contributions towards annual exclusion gifts, and careful transfer tax considerations can provide great returns when chosen wisely.

It's important that you get ahead of the curve before they come into effect. Revisiting asset allocation strategies or considering more creative gifting solutions may be wise moving forward. Here’s what you should know.

Here’s How You Can Take Advantage of the 2023 Increased Exemption Amounts

  • Estate, Gift, and Generation-Skipping Transfer Tax Considerations

    With the rising cost of living, estate and gift planning opportunities have become significantly more expansive, with even greater benefits on the horizon for 2023. These increased exemptions were set in place by the 2017 Tax Cuts and Jobs Act (TCJA) and are set to expire in 2025, so we encourage you to take advantage of them today. The estate and lifetime gift tax exemption will be $12.92 million per individual for 2023, an increase from $12.06 million in 2022.

  • Annual Gift Exclusion

    Each year, individuals can give up to a certain amount of money without any tax penalties. Presently this limit is $16,000 per individual and twice that for married couples; however, the laws are set to expand in the coming years — rising as high as an estimated $17,000 single / $34,000 married in 2023.

  • Gift Planning Irrespective of Rising Interest Rates

    With the IRS’s recent shift in Applicable Federal Rates (AFRs), estate planning strategies have undergone a transformation. Whereas before, short-term AFRs were historically lower than mid- and long-terms, now it is the opposite — making longer-term loans more attractive for gift tax purposes as well as annuities or reversionary interests. Allowing individuals to mitigate refinancing risks within three years makes taking advantage of these new rates even easier.

  • Asset Swaps

    Older individuals can strategically reduce their estate taxes by taking advantage of the step-up in basis available at death. Currently, when an individual's assets pass on after death, their value gets a step-up, meaning any built-in gain is not subject to income taxation.

    A common strategy for those with lower cost basis and older individuals, in particular, is "swapping out" low-basis investments held within trust structures and replacing them with higher-valued items that will ultimately be included in one’s estate upon passing. This process calls for equal amounts of fair market values at swap time, ensuring no negative consequence as far as taxes are concerned — creating a win/win situation.  

Exclusions May Fall after 2025, Consider Gifting Now

Maximize your estate planning with the all-time highest gift and estate tax exemptions. Current legislation is set to reduce the current lifetime exclusion amounts on December 31, 2025. Therefore, it may be more beneficial for individuals to plan large gifts sooner rather than later, especially if you're in a state where even lower limits apply.

The IRS has already explained that those who use their increased exemptions will not incur any negative tax implications should the amount drop before then, so now is a great opportunity for you to take full advantage of this one-time window and make your plans accordingly.

Please note that most of these planning techniques would require consultation with your estate tax attorney to make these changes. If you don’t have an attorney you are already working with, we are happy to share some recommendations that we feel would be a good fit.

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December 27, 2022