New Year, New Opportunities
The new year brings to mind opportunities for self-betterment—going to the gym more often, eating healthier, or starting a new hobby. However, these goals that we set, though well intended, are often short-lived. To offer a different perspective on New Year’s resolutions, consider setting estate planning goals in 2023 that will not only be beneficial in the short term, but also offer benefits for you and your loved ones that have the potential to last for generations.
The IRS implemented an estate and gift tax exemption of $12.92 million (an $860,000 increase from the previous year) and an annual gift tax exemption of $17,000 (or $34,000 for married couples) for 2023. While currently high, these large exemption amounts are scheduled to sunset back down to $5 million (inflation adjusted) starting in 2026. This current opportunity affords clients whose estate values fall (or will fall at their death) within the range of $5+ million an opportunity to “lock in” these unprecedented exemption amounts for asset preservation and tax minimization.
The most common strategy to “lock in” the current exemption amount is by way of lifetime gifts. Lifetime gifting is extremely effective by allowing gifted assets to increase in value over time, outside of the donor’s taxable estate. Yet many are left with the concern that gifted assets may not be managed properly by the recipient. Creating an irrevocable trust with the recipient as the beneficiary is a method that allows one to put rules in place stipulating how and when the beneficiary can access gifted assets.
Another gifting option to consider is the creation of a Family Limited Partnership (“FLP”). Unlike an irrevocable trust solely benefiting the donee beneficiaries, an FLP serves as an investment company holding investment assets in which minority interests can be gifted to a beneficiary (most often children). This gifting of minority interests enables clients to utilize the annual gift tax exemption (or lifetime exemption, if larger gifts are intended) while allowing the majority owners (e.g., parents) to maintain a level of control over the gifted assets that are now outside of their taxable estate. Rather than making a large gift to a beneficiary at one time, this is the perfect vehicle for those wishing to decrease their taxable estate size gradually.
New Year’s resolutions can be daunting, especially when trying to accomplish them alone. Fortunately, our team has the expertise to provide guidance and work alongside our clients to create manageable timelines and achieve estate planning goals now and into the future.
About the Author
Madison J. Jones
Legal Assistant