The Internal Revenue Service has announced the 2023 inflationary adjustments to the estate and gift tax applicable exclusion (from $12.06 million in 2022 to $12.92 million in 2023) and to the annual gift tax exclusion (from $16,000 in 2022 to $17,000 in 2023).
Currently (2023), the applicable exclusion is $12.92 million. The estate and gift tax applicable exclusion amounts are “unified,” meaning that a person can use the exclusion during their lifetime by making taxable gifts to others and any applicable exclusion not applied to lifetime gifts can be applied to property held at death. This means that a person may gift up to $12.92 million in assets during their lifetime or, if they make no taxable gifts, die owning assets totaling $12.92 million and pay no gift or estate taxes. The current tax rate on lifetime gifts or estates worth more than $12.92 million is 40%. Under current law, the applicable exclusion is adjusted annually with inflation. Accordingly, it should increase modestly each year (due to a higher inflationary environment, the increase between the 2022 figure and the 2023 figure was $860,000). Notably, there was a substantial increase in the applicable exclusion in 2018. The Tax Cuts and Jobs Act passed in 2017 increased the applicable exclusion from $5.49 million (in 2017) to $11.18 million (in 2018) to $11.4 million (in 2019), to $11.58 million (in 2020), to $11.7 million (in 2021), to $12.06 million (in 2022), to $12.92 million (in 2023), but this substantial increase is only temporary and, barring Congressional action sooner, the applicable exclusion will return to its 2017 value (plus an increase for inflation) after 2025.
In addition to the increase in the applicable exclusion, the annual exclusion for gift tax increased from $16,000 in 2022 to $17,000 in 2023. The gift tax annual exclusion permits a taxpayer to exclude up to $17,000 per person per calendar year without any gift tax reporting requirement and the gifts won’t use any of the applicable exclusion amount (meaning that annual exclusion gifts do not reduce a taxpayer’s applicable exclusion). As a result, annual exclusion gifts are a very popular (and efficient) way to transfer assets.
The applicable exclusion and the annual exclusion are some of the important considerations in developing an estate plan and planning for the transfer of wealth; to read a more in-depth overview of estate planning concepts, click here.
Brandon Rebboah is an attorney in Berliner Cohen’s Estate Planning Group. Mr. Rebboah counsels individuals and families on a variety of estate planning and wealth transfer matters ranging from the formation of living trusts to sophisticated, multi-generational transfers of wealth. In 2022, Mr. Rebboah was recognized by Thomson Reuters in its Super Lawyers publication as a “Rising Star” – a recognition given to no more than 2.5 percent of California attorneys.
 Rev. Proc. 2022-38 (2022).
 This applicable exclusion is available to U.S. taxpayers (including U.S. citizens and domicilaries) but is not available to nonresident aliens.
 Always consult with qualified professionals (attorneys, accountants, and otherwise) about your estate planning and/or gifting needs. This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship. Anyone with questions about this topic should consult an attorney.