Trust and Estate Planning Strategies for 2023

With 2022 bringing very little change to trust and estate law, 2023 remains a prime opportunity to take advantage of the favorable tax landscape. The gift and estate tax benefits under the Tax Cuts and Jobs Act (TCJA) are still in effect, but many of the provisions are scheduled to sunset at the end of 2025, or even sooner if Congress enacts changes.

Most notably for estate planning purposes, the TCJA doubled the estate, gift, and generation-skipping transfer (GST) tax exemptions. Adjusted for inflation, the current federal estate, gift and GST exclusion amount is $12.92 million for 2023. That is more than double the pre-TCJA amount, which the law will revert to in 2026.

While TCJA benefits are still in effect, we are advising our clients to consider the following strategies:

  • Maximize gifting up to the 2023 annual exclusion amount of $17,000 per taxpayer ($34,000 for married couples).
  • Depending on the value of the estate, consider strategies to keep it below the current exemption amount of $12.92 million (individual) or $25.84 million (married). An estate is not subject to federal estate tax if its value is less than the exemption amount.
  • Make the maximum contributions to IRAs ($6,500 limit for 2023, or $7,500 for those over age 50).
  • Plan charitable giving (including charitable IRA rollovers) to maximize the deduction on 2023 income tax returns. Qualified charitable distributions made directly from an IRA could satisfy Required Minimum Distributions (RMDs) and exclude it from taxable income.
  • Set up 529 Plan accounts for children/grandchildren and consider including five years’ worth of annual exclusion gifts, taking into account any gifts made during the year to children/grandchildren.
  • Submit tuition or non-reimbursable medical expenses directly to the school or medical provider to avoid these amounts counting toward the annual or lifetime gift tax exemption.
  • Consider creating and funding a Grantor Retained Annuity Trust (GRAT), which is an irrevocable trust created for a certain period of time. Assets are placed under the trust and an annuity is paid out to you every year. When the trust expires and the last annuity payment is made, assets are passed to beneficiaries outright or (preferably) remain in a trust for the beneficiaries.
  • Find out if a Qualified Personal Residence Trust (QPRT) is right for you. This irrevocable trust allows homeowners to transfer the home at a significantly discounted rate.
  • Explore the option of intra-family lending, which transfers partial wealth earnings to family members without lowering the lifetime estate tax exemption or triggering gift taxes.
  • Consider a freeze transaction, through which future growth in investments is removed from the taxable estate.
  • Re-evaluate life insurance coverage, which presents significant opportunities to defer and/or avoid income taxes, as well as to provide assets to pay estate tax or replace assets used to pay estate tax.
  • Owners of non-grantor trusts should consider making income distributions to beneficiaries, as they may be taxed at a lower tax rate.

Not all taxpayers will need or want to take all twelve of these steps, but understanding their options and communicating with their tax and estate planning advisors will ensure they are implementing the most effective strategies for achieving their wealth preservation and transfer goals.

This article originally appeared in Crain’s New York Business on February 13, 2023. 

Rozleen Giwani Rozleen Giwani, CPA is a Tax Partner at Grassi, where she focuses on tax planning and preparation services for family offices, high-net-worth individuals and closely held businesses. She has spent more than 18 years advising high-profile and ultra-high-net-worth individuals, multi-generational families, CEOs, executives and entrepreneurs on achieving their full tax-savings potential. As a leader in Grassi’s Family Office practice, Rozleen leads ultra-high-net-worth families and... Read full bio

Categories: Advisory, Trusts & Estates