Estate Planning, Probate, Small Business, & Asset Protection

Legally Speaking: Gift Estate Tax Facts 2023

Legally Speaking: Gift Estate Tax Facts 2023

Taxation of Gifts & Estates is often misunderstood, with many misconceptions floating out there. Here’s some important facts concerning (2023) Federal Gift & Estate Tax laws.

Estate Taxes Only Apply to Property Transfers at Death that Exceed Exemption Limits

In 2023 individuals can pass $12.92 Million upon death to beneficiaries with no Federal Estate Tax. Married couples can pass on double at $25.84 Million. These limits will be reduced by 50% Jan 1, 2026, unless Congress passes a different law. For larger Estates the federal tax rate is a sliding scale maxing out at 40% on assets above the limit.

For simplicity, assume the exemption is $13 Million and the tax rate is a flat 40%.

Federal Taxes are Paid by the Estate / Giver, Not the Beneficiary / Receiver

Example: If Bill, unmarried, dies with an Estate valued at $15 Million, Estate taxes are paid on the $2 million above the exemption. The Estate pays $800,000 (40% x $2 Million) in Estate taxes and the remaining $14.2 Million can be distributed to beneficiaries free of federal tax. Beneficiaries are not taxed on their inheritance in Arizona (Only NE, IA, KY, MD, NE, NJ, PA have inheritance tax).

Making Large Gifts Now Reduces Exemptions at Death

Large gifts, over $17,000 to one person in a year, must be reported to the IRS. Reported gifts are deducted from your Lifetime Gift & Estate Exemption.

Example: Bill gives $1 Million to his daughter today and dies 3 months later with a $15 Million Estate. Bill’s Estate exemption is reduced by the $1 Million gift, leaving only $12 Million to transfer tax-free to beneficiaries. Bill transferred a total of $16 Million ($1 Million in life and $15 Million at death), which exceeded his lifetime Gift and Estate Exemption by $3 Million, which is subject to a 40% Estate tax. His Estate will therefore pay $1.2 Million in tax. Bill’s sole heir, his daughter, does not pay federal taxes on her inheritance.

Example: Bill gives $15 Million to his friend “Lucky” this year. Bill reports a $15 Million gift to the IRS and pays gift taxes based on the $2 Million above his lifetime exemption, which amounted to $800K for Uncle Sam. When Bill dies, his Estate pays 40% Estate tax on ALL ASSETS because his entire exemption
was used up during his lifetime.

Reportable vs Taxable Federal Gifts

Do not confuse “reportable gift” with “taxable gift”. All gifts exceeding $17K per person per year are reportable, but not taxable until you have exceeded your lifetime exemption. Gifts up to $17K per person per year are not reported to the IRS and therefore do not reduce your lifetime exemption.

Example:Bill & Linda” have $40 Million and want to minimize Estate taxes by maximizing non-reportable gifts each year. They have 5 sons, all married, and 20 grandchildren, totaling 30 people that will get annual gifts from both Bill & Linda. They can gift $1.02 Million each year ($17K x 30 from Bill, and the same from Linda). If gifts are made for 20 years, Bill & Linda reduce their Estate by $20.4 Million, saving almost $8.2 Million in Estate / Gift taxes.

Obviously there are many other tax strategies available such as charitable giving and charitable trusts, but hopefully by having a better understanding Gift and Estate taxes you can….

Leave a Legacy! Not a Burden.

Opt In Image

We are a local Glendale AZ firm dedicated to personalized legal services at a reasonable cost with a focus on Estate Planning, Probate, Asset Protection & Small Business Planning.  We are committed to high-quality personalized service and look forward to talking with you.

You may also call us directly at 623-299-2722.

Sorry, comments are closed for this post.

Leave a reply

Opt In Image
DOWNLOAD: Annual Legal Audit Checklist

As a business owner, you’ve got your hands full just taking care of day-to-day operations. Essential tasks like the maintenance of your business entity can slip through the cracks. While these tasks may not be on the top of your to-do list, keeping your business entity up-to-date is absolutely essential to your continued success.

Estate Planning, Asset Protection, Trust & Probate Attorneys service Arizona

By Appointment Only: 19420 N 59th Ave, C-265 Glendale, AZ 85308

Site Designed and Managed By Heart Soul CEO

Hasegawa Probate & Estate Planning, PLC  BBB Business Review