Your Estate Plan: Incorporating Income Tax Planning

September 14, 2023 HoganTaylor Wealth

Due to the current estate tax exemption amount of $12.92 million in 2023, the concern over federal estate tax has diminished for many individuals. Unlike before 2011 when a lower exemption amount led to widespread efforts to avoid estate tax, the substantial exemption now allows for greater focus on income tax planning for your heirs.

It's important to note that the federal estate tax exclusion amount is set to change after 2025. Starting in 2026, this amount is slated to decrease to $5 million, adjusted for inflation, unless Congress intervenes to maintain the higher limit or establish a new one.

Given the prevailing sizable exemption, consider the following strategies:

Utilize the Gift Tax Annual Exclusion:

Employing the gift tax annual exclusion for lifetime transfers is beneficial not just for estate tax savings, but also for potential income tax implications. This approach removes both the transferred assets and any post-transfer appreciation from the donor's estate.

However, the estate tax savings might not be a primary concern given the substantial estate exemption. Additionally, making an annual exclusion transfer of appreciated property could lead to an income tax drawback, as the recipient assumes the donor's basis upon transfer. Should the heir choose to sell the gifted property, significant capital gains tax could be triggered. Thus, the decision to make a gift should consider factors beyond estate tax, particularly when there's no fear of estate tax liability even if the gifted property appreciates in value.

Consider the Timing of Gifted Appreciated Property:

For instance, gifting appreciated property to aid a relative in purchasing a home may not always be the most tax-efficient choice. In some situations, holding onto the appreciated property until the donor's passing could result in a step-up in basis for the heir, effectively erasing potential capital gains tax.

Spousal Estate Planning:

Historically, spouses employed complex strategies, such as a two-trust plan, to equalize their estates and utilize the estate tax exemption amount. The concept of "portability," introduced for decedents who passed away after 2010, enables the surviving spouse to apply the unused portion of the deceased spouse's exclusion amount. This flexibility offers married couples more options for maximizing their exemption amounts.

It's important to recognize that portability pertains to federal estate tax. States imposing an estate tax generally do not recognize portability. As a result, those potentially subject to state-level estate tax should tailor their plans accordingly.

Please contact HoganTaylor Wealth or HoganTaylor Tax to discuss these strategies and their relevance to your unique estate plan.


HoganTaylor Wealth

HoganTaylor Wealth provides an integrated approach to investment and financial planning and is a registered investment advisor and subsidiary of HoganTaylor LLP. HoganTaylor Wealth takes pride in serving clients as an independent fiduciary through holistic financial planning. Learn more at

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.

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