3 Important Estate Planning Updates 2023

Jan 9

When it comes to planning your legacy, the big stuff never really changes (otherwise, it would be a bit difficult for me to draft trusts intended to last for multiple generations), however, there are small tweaks to the law that are done every year that you should be aware of.

Most of the important year-over-year changes involve the tax code. Here are the three most important ones (that may or may not impact your own estate planning) in 2023:

Increase in Annual Gifting Exclusion: You can now gift up to $17,000 per year to each donee (e.g., each child, grandchild, nephew) without any gift tax implications. For married couples, this is effectively doubled to $34,000 per year. Please note: there are certain qualified expenses that would not count towards this limit (e.g., qualified education or medical expenses are not applied against the exclusion amount). There is also a special rule for 529’s (education investment accounts) that allows you to gift up to 5 years in advance.
Federal Lifetime Exclusion Decrease Approaching: While the lifetime exclusion (for Federal estate tax purposes) remains ridiculously high at almost $13 million per person, that provision is set to expire on the last day of 2025. At that time, we expect the rate to be cut in half (technically, it will be $5,000,000 with an adjustment for inflation).

What does this mean? If you own a home, a vacation/rental property, and have a decent retirement plan and/or life insurance, then you could be within striking distance of the Federal estate tax (currently set at a 40% tax rate) within a few years. The good news is that this can easily be planned around for most married couples with separate trusts (or an appropriate gifting strategy for unmarried persons). If you are a widow and expect to be above that limit, then you’ll want to make sure you filed your federal estate tax portability election.
Massachusetts Estate Tax Still Stuck at $1 Million Threshold: Technically, this isn’t an update in the law, but it’s an update in practice for most of you who live in Massachusetts and have seen your property values skyrocket over the last two years. Since the Massachusetts estate tax threshold still hasn’t changed (stuck at $1 mil), virtually all of my Massachusetts home-owning clients have to consider the impact of Massachusetts estate tax on their children’s inheritance. For my clients who recently moved to New Hampshire or Florida, you only have to worry about this if you still have real estate in Massachusetts.

There is a pending bill to increase the $1 million exemption to $2 million in Massachusetts, but I wouldn’t hold your breath.

Other Important Estate Planning Reminders:

Every year I highly recommend you do three things to ensure your estate plan is executed smoothly:

Review Estate Planning Documents. Read (or at least skim) through your existing documents to make sure nothing has changed with respect to your wishes and/or family situation.
Update List of Assets/Debts. Update your list of assets and debts so that your loved ones know where to look and who to call if something happens to you. This may also include updating your list of usernames and passwords.
Review Beneficiary Designation. Make sure all of your property, financial accounts, life insurance, etc. are correctly titled and have the correct beneficiary designations (sometimes referred to as pay on death “POD” or transfer on death “TOD” designations).