Gift & Estate Tax Changes YOU Should Know

Hi state planning attorney Marc Herbert here with the latest information about gift and estate taxes for 2023. As an attorney since 1995, a major focus of my office is to help California families avoid probate court and unnecessary taxes. But every year there are new state and federal tax laws that affect our ability to transfer our assets to our loved ones during our lives and after we pass away.

This video will cover a lot of information about these important new laws for 2023. In just a few minutes. So you might want to take some notes.

It’s important to remember what we’re not talking about today. So we’re not talking about income tax, capital gains tax, stepped up basis. Those topics are really accounting issues and should be discussed with your CPA or other qualified tax professional who can give you specific answers to those specific questions. So let’s talk about lifetime gifts first. Unlike an inheritance, which happens after you pass away, a lifetime gift is the transfer of an asset during your lifetime.

And you get to watch your loved one enjoy the benefits of that gift. Starting on January 1st, 2023, each American can give up to $17,000 per person other than your spouse per year with no tax consequence to either side. As a married couple, you can gift up to $34,000 per person per year with no tax consequences. However, there are no limits to lifetime gifts to your spouse or to charities.

Now, lifetime gifts can be given to anybody, not just immediate family member, but gifts to individuals are not tax deductible. Gifts to charities usually are. But you need to check with the charity to make sure you get that tax deduction if it’s available. Also, these lifetime gifts make no impact on your estate tax limits, but there are no documents to be filed.

Now you always can gift more than $17,000 as an individual or $34,000 as a married couple. If you don’t mind paying some taxes on that gift. So just as you write a check to your loved one, you will be writing a check to the IRS. And there are some additional forms that have to be filed. But yes, you can gift $17,000 as an individual or 34,000 as a married couple in December of one tax year, and then turn around and do that again in January of the next tax year.

That does not create a taxable event since those gifts took place in two different tax years. But if you give one penny over that limit, there is going to be a tax consequence. You will be writing a check to the IRS.

So moving now to estate taxes. The basic federal exclusion for 2023 for each person has been increased now to $12.92 million as a married couple. The first 25.84 million is transferred to your heirs tax free. However, you should know, these numbers are scheduled to drop on January 1st, 2026. At that point, the individual limit will be reduced to $7 million per person and $14 million per couple.

If you’re over those amounts, there is a 40% tax on any amount over those limits that you’re transferring to your heirs now. Understanding most of us won’t get to those limits on the federal tax side. We have to be aware of several potential tax issues on the California state law side. So in recent years, California has been very busy writing new tax laws, especially for the transfers of land to non spouse heirs.

That means our children. So under Proposition 19, which passed back in 2020, any transfer of land valued at $1,000,000 or more to a non spouse heir under 55 years old could result in the doubling or even the tripling of the property taxes for that land. And if trends in California hold, I expect land values to increase over the next 5 to 10 years.

While I also expect Sacramento to reduce those limits to maybe 800,000 or even 600,000 during that same time frame. So I predict there’s going to be a major collision between increasing property values and the decreasing property tax limits. And it’s going to create a big problem for a lot of families in California. It already is. I think that situation is only going to get worse over time.

So the best solution to avoid these potential tax problems is still to create a customized comprehensive estate plan to protect yourself and your family. Customize to your unique needs and goals based on your unique family structure, your unique assets structure, comprehensive have to cover many different situations during your lifetime and afterward. Now, for most people who own land in California, especially single people, a revocable living trust is the best way to avoid probate court.

And those taxes that we’ve been talking about today. Almost everyone needs more than just a remarkable living trust. But we’ll talk about those details in a different video. So there’s the latest information about gift taxes and estate taxes under current federal law and California law, starting January 1st, 2023. If you found this video helpful, please be sure to like or subscribe below.

Also, please feel free to share your experiences or ask any questions in the comments section below to request a free one hour zoom video or phone meeting to design your estate plan. Just click the link and complete a short intake sheet. Hope you have a great day and we’ll talk to you soon.