2023 Marcum Year-End Tax Guide

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COMPREHENSIVE TAX STRATEGIES: MAXIMIZING YOUR ESTATE AND

GIFT EXEMPTIONS BY RON FINKELSTEIN AND LANCE LVOVSKY

With ever-shifting financial landscapes, understanding the intricacies of tax planning is crucial for wealth management. Federal estate and gift tax exemptions, intertwined with their looming sunset and rising inflation, offer unique and pressing estate planning opportunities. This article delves into the current exemption parameters, annual gifting advantages, estate planning tactics suitable for varying interest rates, and post-year-end income tax planning for trusts. CURRENT FEDERAL EXEMPTION

Annual gifting is an excellent way to reduce the value of a taxpayer’s gross estate over time, lowering the amount subject to estate tax. Remember, if gifting an amount equal to the annual exclusion (or less) to a trust, you should consult with your tax advisors about whether a gift tax return should be filed despite the gift amount falling within the annual exclusion limits. The rules on gifts to trusts are rather complex, and generation-skipping transfer tax laws must be considered on all gifts to trusts, not to mention gifts outright to individuals that skip generations. USING YOUR EXEMPTION AMOUNT Families that may be subject to an estate tax in 2026 (or after) may benefit from transferring assets and appreciation from their estate sooner rather than later. One of the best estate planning techniques to accomplish this is the Spouse Lifetime Access Trust, or SLAT as it is commonly referred. A SLAT allows the grantor to continue to have backdoor access to trust assets.

Spousal Lifetime Access Trust (SLAT) Married taxpayers may want to make lifetime gifts to use the balance of their exemptions but may be uncomfortable not having access to the gifted funds. These taxpayers should consider making gifts to a SLAT. The taxpayer who creates the trust will include their spouse as a beneficiary. The donor (grantor) grants the spouse direct access to the SLAT assets by having the spouse as a beneficiary. While this is a completed gift for gift and estate tax purposes, a SLAT is generally taxed as a grantor trust for income tax purposes, allowing the trust assets to grow tax-free for the spouse and any other beneficiaries. The payment of the income tax on a grantor trust does not constitute an additional gift, allowing the grantor to transfer additional wealth free of gift or estate tax.

The federal estate and gift tax exemption is $12,920,000 for 2023. That amount increased from $12,060,000 in 2022. The exemption is scheduled to increase to $13,610,000 per person in 2024. Record inflation in this country has provided taxpayers with an exceptional opportunity to effectuate additional estate planning transactions. Under current tax law, the exemption sunsets after December 31, 2025, to the pre-2018 amount (with inflation), or approximately $7 million. Keep in mind that all figures discussed here apply to U.S. citizens and U.S. domiciled persons. The 2023 annual gift exclusion is $17,000. This amount can be gifted per person per year, tax-free. In addition, married couples can elect to split gifts. This strategy allows married taxpayers to give up to $34,000 to an individual in 2023 before a gift tax return is required. In 2024, the annual exclusion is scheduled to increase to $18,000.

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