The inflation reset has allowed for wealthy Americans to leave their children an increased amount of money with no tax exemptions.
Key Details
- Married American couples can now leave their children nearly $26 million tax-free.
- The U.S. estate and gift tax threshold sits at nearly $26 million for 2023, which is $1.7 million more than in 2022 and $2.4 million more than in 2021.
- The jump in price is the largest since 2018 when t was nearly doubled, but the price isn’t expected to last long, with an estimate of it being cut in half in the next three years.
Why it’s news
Wealthy Americans are coming into 2023 as winners who can leave their children millions without the fear of it being touched by the government.
The U.S. estate and gift tax was adjusted for last year’s record-high inflation making the threshold go up to $12.9 million per person or nearly $26 million per married couple.
The tax typically ranges from 18% to 40% and only applies to money, property, and other asset transfers. The assets only get taxed after a specific price which has been significantly raised for 2023.
The tax gets reevaluated by the Internal Revenue Service (IRS) yearly, and this year was adjusted for inflation, hiking the price dramatically marking the biggest jump since 2018.
The time is ticking for wealthy Americans to pass on this much wealth tax-free because tax is expected to be cut in half in three years after provisions signed by former President Donald Trump expire.
Many Americans, especially Republicans, are not in favor of the estate tax and would like to end it completely. Republicans think the tax hurts businesses and is unfair as it taxes things twice—once when the estate is bought and again when it is transferred and is typically a large sum.
Democrats, on the other hand, think the tax is beneficial and helps with inequality as the tax is only for very wealthy estates. Many Democrats also believe it helps eliminate any wrongdoings of people trying to get around the rules or find any loopholes.
Many advisers are telling the wealthy to put money in trusts while they can, and the number is high because there is no telling what the future holds.