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Thursday, January 5, 2023

The Inflation Reduction Act and Estate Planning

President Biden signed The Inflation Reduction Act of 2022 into law on August 16, 2022. In its shortened form, the Act did not include or address many proposals that would have concerned members of the estate planning community and high-worth individuals and families. If you are concerned that you may need to change your estate plan after the passage of this legislation, a Florida estate planning attorney can answer your questions.

Does the Infection Reduction Act Affect My Estate Plan?

The answer to this question is most likely no. Generally speaking, the Act primarily consists of items that affect business taxation and increase energy-related credits. It did not address other proposals, such as decreasing estate, gift, and generation-skipping transfer tax exemptions and modifying grantor trust rules. So, the passage of this legislation does not by itself necessitate changes to your estate plan.

However, there are other developments related to inflation that can impact your estate planning and that you should be aware of. One of them is the IRS releasing many inflation-adjusted changes to income tax brackets, deductions, and credits for 2023. This includes increases to the annual federal gift tax exclusion, which is now $17,000 per person in 2023 (previously $16,000 in 2022). This means you can gift this amount to as many people as you wish without using up your lifetime gift and estate tax exemption or paying gift tax.

Another inflation-related change is that the federal gift and estate tax exclusion is also increasing for 2023. It will now be $12.92 million per person, rising from $12.06 million in 2022.

Important Legislation Will Soon Sunset

Since you are on the topic of your estate plan, it is essential to remember that significant legislative changes are coming soon. The increases to the gift and estate tax exclusions resulting from Tax Cuts and Job Act will expire on December 31, 2025, if Congress does not extend it or make it permanent. Upon expiration, the gift and estate tax exclusions will be reduced by approximately 50% to pre-2018 levels.

Depending on your circumstances, this event could significantly impact your estate plan. Now may be the right time to meet with an estate planning attorney to see what options are available to minimize federal tax consequences to your estate. Luckily, Florida does not impose estate tax on a state level.

Another estate planning technique to consider is portability. Recent IRS rules have expanded the availability of this benefit to living spouses for up to five years after a person's death. If your spouse recently passed, you may benefit from claiming portability of their unused federal exclusion sooner rather than later. Depending on when they passed away, you may have limited time to take advantage of portability.

If you have questions about estate planning or if your plan needs to be updated, we invite you to contact our office today. We can review your case and help you understand all of the options that may be available to you.


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The Law Office of Jeffrey A. Herzog, P.A. assists clients in Florida, including North Pinellas County, Palm Harbor, Trinity, West Pasco County, and the surrounding areas.



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