The information provided below covers some key changes for the year ahead, a long-term estate planning trend, and a word of caution related to the recent real estate investing boom. I encourage you to take a look and reach out with any questions.
Gift-Giving and Taxes
Anyone who has a taxable estate above the lifetime exemption can expect to pay anywhere between 18% to 40% in estate tax in 2023. However, there is good news. In 2023, the per-person lifetime exemption from estate and gift tax is has risen to approximately $12.92 million, higher than last year’s $12.06 million.
This means that someone with a taxable estate of $12 million won’t have to pay taxes. On the other hand, a $13 million estate could end up paying 40% in taxes over the maximum limit ($12.92 million), which would amount to about $32,000 in estate tax.
For taxpayers who want to avoid a tax penalty, gift-giving is one of the simplest ways to do so. In 2023, you can give up to $17,000 per person without paying taxes; that’s $1,000 more per person than in 2022. By giving gifts to multiple loved ones each year, a larger tax burden can sometimes be avoided.
In addition, direct payment of medical bills and educational expenses also qualifies for a yearly tax exclusion with no limit amount.
Real Estate Professionals, Don’t Alarm the IRS
In recent years, I’ve seen more clients include investment properties in estates. With that said, I want to note that before you leave any land to your next of kin, make sure you have reported the investment and paid any associated taxes to the Internal Revenue Service (IRS). Otherwise, beneficiaries will be subjected to tax audits.
This is especially true for brokers, developers, landlords, and other real estate professionals who spend more than 50% of their working hours (or 750-plus hours) in the real estate industry.
In addition to documenting rental profits and rental losses, make sure your beneficiaries fully understand their responsibilities and the documentation affiliated with those properties.
Grantor Trusts Among Generations Set to Climb
According to a 2021 report, grantor trusts (77%) are the most common way to increase the tax efficiency of wealth transfer events among high-net-worth practices, followed by spousal lifetime access trusts (54%) and strategic gifting (46%).
This report projects that wealth transferred through 2045 will total $84.4 trillion; $72.6 trillion in assets will be transferred to heirs and $11.9 trillion will be donated to charities. Most of it will come from Baby Boomers, and a small portion will come from the Silent Generation.
Communication, Organization Remain Key
While the most successful estate planning strategy relies on strong, open family communication, educational support and organized succession planning also help to make wealth transfer easier.
With that said, now may be the time to start planning (or updating):
Intra-family loans
Release And Indemnity Agreements (optional)
Assigning or divorcing a trustee
Power of attorney
We want to end with a final reminder that having (sometimes uncomfortable) conversations now will help your family avoid any miscommunications – or even a pile of legal fees from probate court – down the road.
Know we’re always here to help you with any relevant estate planning needs that arise. Do not hesitate to contact us at office@staltfinancial.com or call 248-733-4344 or set a meeting on our online calednar, www.calendly.com/staltfinancial
This material is for educational purposes only. Neither MML Investors Services, LLC nor any of its subsidiaries, employees or representatives are authorized to give legal or tax advice. Consult your own personal attorney legal or tax counsel for advice on specific legal and tax matters.
Stalt Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Stalt Financial's web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. CRN202604-4178008