The Listen to Lawrence Letter: Federal estate tax exemption and the “cliff tax”

November 17, 2022
November 15, 2022 • Volume 3 Issue 90
HOLY INFLATION, BATMAN!

ALERT:

As of January 1, 2023, the federal estate tax exemption will jump dramatically to $12,920,000. That is close to a million-dollar increase.  Times this number by 2 for a married couple because a spouse can elect to inherit their deceased spouse’s exempt amount (this is called “portability”). The number is increased each year based on the inflation rate. Need I say more?

What does this mean? Essentially, if you die with (or give away) more than this amount, you will be subject to federal estate tax (or gift tax). The tax is roughly 40% on the excess above this figure. There is no federal tax on amounts less than this threshold.

Contrast this to the New York State estate tax exemption of $6.11 million in 2022. If you die with less than this amount there will be no tax. However, if you die with more than 5% over this amount, you lose your entire exemption and are taxed on dollar one. When you go over this amount, we call it the “CLIFF TAX.” OUCH!

There are many planning opportunities to reduce or eliminate the tax burden here.

I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.

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