Each year, the IRS adjusts certain tax thresholds for inflation, and the changes taking effect in 2023 are among the most significant in recent memory. For individuals engaged in estate planning or making gifts to family members, understanding the updated exclusion amounts can open meaningful planning opportunities.
The trusts and estates attorneys at Mandelbaum Barrett PC work with clients throughout New Jersey and New York on strategies to protect and transfer wealth across generations. The 2023 increases to the annual gift tax exclusion and the federal estate tax exemption represent a window worth discussing with your advisors.
The 2023 Annual Gift Tax Exclusion
For 2023, the IRS increased the annual gift tax exclusion from $16,000 to $17,000 per recipient. This means an individual can transfer up to $17,000 to any number of recipients during the year without triggering a gift tax filing requirement. A married couple can combine their exclusions, allowing them to gift up to $34,000 per recipient per year without gift tax implications.
The annual exclusion is one of the most accessible estate planning tools available. Consistent annual gifting over time can meaningfully reduce the size of a taxable estate, particularly for families with significant assets. Gifts that stay within the annual exclusion do not count against the lifetime exemption discussed below.
The 2023 Federal Estate and Gift Tax Exemption
The federal estate and lifetime gift tax exemption also increased substantially for 2023, rising from $12.06 million per individual to $12.92 million. For married couples using portability, the combined exemption reaches approximately $25.84 million.
According to the IRS, amounts transferred at death below the applicable exemption are not subject to federal estate tax. Assets above the exemption are taxed at a top rate of 40 percent. This makes the exemption a central variable in estate planning for high-net-worth individuals.
It is worth noting that the current elevated exemption amounts were scheduled to revert to lower levels after 2025 under the sunset provision of the Tax Cuts and Jobs Act, absent new legislation. This created a planning window for those who wanted to take advantage of the higher exemption before any potential reduction.
New Jersey Estate Tax Considerations
New Jersey does not impose a state estate tax on estates of decedents, following the repeal of the NJ estate tax in 2018. However, New Jersey maintains an inheritance tax that applies to certain beneficiaries, including siblings and more distant relatives. The interplay between federal and state tax obligations is a key consideration in any NJ estate plan.
How These Changes Affect Estate Planning Strategy
The 2023 increases provide families with additional flexibility to transfer wealth during life. Common strategies that work in conjunction with the updated exclusions include:
- Annual gifting programs that take full advantage of the per-recipient exclusion
- Front-loading contributions to 529 education savings accounts through five-year gift tax averaging
- Irrevocable trust strategies designed to remove appreciating assets from the taxable estate
- Spousal lifetime access trusts and other structures that preserve flexibility while reducing estate exposure
Each approach carries its own tradeoffs, and the right strategy depends on the specific goals, assets, and family circumstances of each client.
Speak with Mandelbaum Barrett PC About Your Estate Plan
If you have not reviewed your estate plan in light of recent tax changes, now is a practical time to do so. The trusts and estates team at Mandelbaum Barrett PC can help you evaluate whether the 2023 exemption increases created new planning opportunities, and how the upcoming sunset of elevated exemptions should factor into your long-term strategy.
Contact us through our contact page to schedule a consultation. Our attorneys advise clients throughout New Jersey and New York on estate planning, gift strategies, and related tax matters.