Estate and Gift Tax

The lifetime estate and gift tax exemption for 2023 deaths is $12,920,000.

After 2025, the exemption will fall back to $5 million, adjusted for inflation, unless Congress agrees to extend the higher amount. The odds of any extension depend on which party controls the White House and Congress after the 2024 election.

Most tax-free gifts you make now won’t trigger post-2025 estate tax bills.

Estates use the higher lifetime exemptions for gifts to calculate post-2025 estate taxes. So, many people who made or make big gifts from 2018 through 2025 won’t lose out on the benefit of the larger exemption amount if it drops back down in 2026.

But not all gifts would qualify.

Under an IRS proposed reg, completed gifts that are later included in the decedent’s gross estate at death would be subject to the exclusion amount in effect in the year of the donor’s death. Implicated strategies include grantor-retained income trusts and transactions involving promissory notes.

D.C. and 12 states levy their own estate taxes on some decedents:

Conn., Hawaii, Ill., Maine, Md., Mass., Minn., N.Y., Ore., R.I., Vt. and Wash. The estate tax exemption amounts in these 13 locales vary widely from state to state. Only Conn. has hiked its exemption amount close to the current federal level. Six states now have inheritance taxes: Iowa, Ky., Md., Neb., N.J., Pa. Iowa’s inheritance tax is currently being phased out and is slated to end after 2024.

Two retirement account beneficiaries got a tax jolt when their cousin died.

They personally owe Pa. inheritance taxes on the IRA funds they received. The IRA accounts were nonprobated assets, meaning they passed to the beneficiaries outside of the decedent’s last will and testament. The state reads language in the will as making the estate responsible for paying inheritance taxes on the transfer of probated assets, but not on nonprobated asset transfers. The state appellate court agreed with this view, and said the two IRA beneficiaries are liable for inheritance tax on the distributions they respectively received (Est. of Bavol, Pa. Superior Court).