Even after a year in which the vast majority of the wealthiest Americans lost a chunk of their fortunes — and in some cases, lost big — in at least one way, they’re still coming out ahead.
The rich are starting 2023 with millions more dollars that they can lavish on future generations without triggering the US estate and gift tax. Last year’s inflation, the highest in decades, means married couples can now hand their heirs almost $26 million tax-free, $1.7 million more than in 2022 and $2.4 million more than in 2021.
The hike in the lifetime estate-and-gift tax exemption — adjusted for price growth annually by the Internal Revenue Service — is the largest since 2018, when the amount was doubled by Republican-passed legislation signed by former President Donald Trump the prior year. As a result, the individual exemption, which is easily shared between spouses, has rocketed to $12.9 million from $5 million in 2011.
Rich Americans may be running out of time to pass on this much wealth. The exemption is slated to be cut in half in three years, when provisions of Trump’s tax law are set to expire. While even $26 million is a drop in the bucket for the ultra-rich, the exemption’s size shows why generational wealth transfers — estimated by research firm Cerulli to total almost $73 trillion in the US through 2045 — go largely untouched by the government. Plus, advisers can use loopholes and leverage to multiply the amount of tax-free money available to heirs.
Add in future annual increases as prices continue to rise, and for wealthy heirs “there is going to be a lot to work with,” said Brandon Smith, director of estate planning at Wetherby Asset Management in San Francisco. “The falling markets and rising rates isn’t all bad news. It just signifies a shift in the planning devices that make sense.”
