Five Ways to Protect Your Estate in 2023
January 27, 2023
A new year signals new opportunities to protect your family against life’s inevitable ups and downs. Over the last several years we have weathered a health and humanitarian crisis, severe economic disruption, the war in Ukraine, rising inflation and several important changes in the law. It is perhaps more vital now than ever to plan for your family’s future, and adjust existing plans to reflect these widespread economic and societal changes.
Here are a few ideas to consider for 2023 to protect your estate and preserve your legacy for your loved ones.
1. Federal Gift & Estate Tax Exemption
Certain federal gift, estate and generation-skipping transfer (GST) tax figures are subject to yearly inflation adjustments.
The 2023 federal gift, estate and GST tax exemption increased to $12,920,000 per person (from $12,060,000). For married couples the combined exemption is now $25,840,000. This increase is an opportunity to transfer wealth and mitigate taxes before the exemption "sunsets" at the end of 2025 and reduces to one-half of its current level.
2. State Gift & Estate Tax Exemption
For 2023, there are changes to the exemptions in two of the states where Murtha Cullina has locations:
- The 2023 Connecticut gift and estate tax exemption increases to $12,920,000 from $9,100,000.
- The 2023 New York gift and estate tax exemption increases to $6,580,000 from $6,110,000.
- The 2023 Massachusetts exemption remains a lowly $1,000,000.
These state-level exemption increases are a further incentive to pass assets to, or for the benefit of, future generations while you still can. For example, when the increased federal exemption sunsets, the increased Connecticut exemption will sunset as well.
3. Annual Exemption Increase for Gifts
Due to inflation adjustment, the 2023 annual exemption for gifts increased to $17,000 per recipient (from $16,000) and the 2023 annual exemption for gifts to a noncitizen spouse increased to $175,000 (from $164,000). This enables married couples to give $34,000 per donee without gift tax consequences.
This increase in annual exclusion is a good opportunity to contribute as much as $85,000 per donor to a 529 Plan if the contribution is treated as if it were separate $17,000 contributions per year over a five-year period. This five-year election must be reported on a Federal Gift Tax Return for each of the five years. This can be done by each spouse for any number of children or grandchildren.
4. Estate Planning Document Review
Assess who you have named as your executors and trustees to make sure they are still the best choices for these important jobs.
Review your Health Care Proxies and Durable Powers of Attorney for financial matters to ensure a backup plan to make decisions for health and financial matters.
Consider a revocable trust to hold your assets. The trust is a substitute for a Will, allows a successor trustee you choose to step in and manage your assets if you become incapacitated and is tax neutral. Equally important, a revocable trust saves time and expense at your death by avoiding probate and providing beneficiaries immediate access to your assets.
5. Retirement Plan Contributions & Distributions
The contribution limit for 401(k), 403(b) and most 457 plans increased in 2023 to $22,500 (from $20,500). The limit for catch-up contributions to such plans for people over age 50 will increase to $7,500 (from $6,500).
The limit on annual contributions to an IRA increased to $6,500 (from $6,000), with the IRA catch-up contribution limit remaining at $1,000.
On December 29, 2022, President Biden signed into law the Secure 2.0 Act, making important changes related to retirement plan contributions and administration. Some of the important changes include the following:
- An increase to the age for starting required minimum distributions (RMDs) to 73 as of 2023 (for individuals who attain age 72 after December 31, 2022) and then to age 75 as of 2033 (for individuals who attain age 74 after December 31, 2032); and
- Elimination of pre-death RMDs from Roth accounts in 401(k) and 403(b) plans after 2023.
In addition, new life expectancy tables, which are used for determining RMD amounts from IRAs and qualified retirement plans, went into effect in 2022. We recommend contacting your plan administrator or financial advisor to determine how these changes impact you and how to compute your RMDs for 2023.
Bonus Tip: Contact Your Estate Planning Attorney for More Information
We encourage you to connect with us to have your current estate plan reviewed for estate tax planning and business succession planning opportunities available in 2023. This will ensure that your estate plan continues to reflect your intentions and is up to date with your current circumstances. If you have any questions regarding these ideas, please contact Bill Morgan, Trusts & Estates Counsel, at 617-457-4061 or email@example.com.