In the U.S., when inheriting assets, if the value of the decedent’s assets exceeds the IRS’s basic exemption amount, the decedent is required to pay estate tax.
In Japan, heirs are required to pay inheritance tax, but in the U.S., the deceased (decedent) is responsible for paying the estate tax.
The estate tax is two types, the Federal Estate Tax and the State Estate Tax. According to the IRS, the federal estate tax exemption will be reduced after 2026. Therefore, if you are planning to inherit an estate in your family, it would be a good idea to start estate and gift planning now.
In addition, the most important thing is to discuss the matter with your family as much as possible. In this article, we would like to explain the U.S. estate and gift tax exemption.
Planning a large estate or gift?
According to the Internal Revenue Service (IRS), the lifetime exemption amount for estate and gift taxes was $12,060,000 per person for 2022. In 2023, the exemption is $12,920,000, a slight increase. (For more information on the tax exemption, please refer to the IRS website）
However, according to the IRS, this exemption will be lowered after the end of the 2025 tax year, and in 2026, the exemption will be lowered to the previous level of $3,000,000 per person.
Therefore, it is possible to reduce estate taxes by taking measures such as making planned gifts in anticipation of future inheritances.
Do you have assets that will increase in value significantly over the next few years?
Be especially careful if you have assets that are expected to increase in market value significantly before 2026, including not only current asset values, but also cash deposits, and even fixed assets and stocks. In some cases, this may result in an increase in estate tax liability once the 2026 tax exemption is lowered, which could result in a case where you would have to pay a significant amount of tax
If you know of any such cases, start gift planning and implementation now.
For the reasons stated above, it is imperative to plan for estate and gift planning in 2023.
For tax advice on estate and gift planning, please contact Muso & Co. anytime.