November 15, 2023

Comprehensive Tax Strategies: Maximizing Your Estate and Gift Exemptions

By Ronald Finkelstein, Partner, Tax & Business Services & Lance Lvovsky, Partner, Tax & Business Services

Comprehensive Tax Strategies: Maximizing Your Estate and Gift Exemptions Year-End Tax Guide

With ever-shifting financial landscapes, understanding the intricacies of tax planning is crucial for wealth management. Federal estate and gift tax exemptions, intertwined with their looming sunset and rising inflation, offer unique and pressing estate planning opportunities. This article delves into the current exemption parameters, annual gifting advantages, estate planning tactics suitable for varying interest rates, and post-year-end income tax planning for trusts.


The federal estate and gift tax exemption is $12,920,000 for 2023. That amount increased from $12,060,000 in 2022. The exemption is scheduled to increase to $13,610,000 per person in 2024. Record inflation in this country has provided taxpayers with an exceptional opportunity to effectuate additional estate planning transactions. Under current tax law, the exemption sunsets after December 31, 2025, to the pre-2018 amount (with inflation), or approximately $7 million. Keep in mind that all figures discussed here apply to U.S. citizens and U.S. domiciled persons.

The 2023 annual gift exclusion is $17,000. This amount can be gifted per person per year, tax-free. In addition, married couples can elect to split gifts. This strategy allows married taxpayers to give up to $34,000 to an individual in 2023 before a gift tax return is required. In 2024, the annual exclusion is scheduled to increase to $18,000.

“Annual gifting is an excellent way to reduce the value of a taxpayer’s gross estate over time, lowering the amount subject to estate tax.”

Remember, if gifting an amount equal to the annual exclusion (or less) to a trust, you should consult with your tax advisors about whether a gift tax return should be filed despite the gift amount falling within the annual exclusion limits. The rules on gifts to trusts are rather complex, and generation-skipping transfer tax laws must be considered on all gifts to trusts, not to mention gifts outright to individuals that skip generations.

2023 Marcum Year-End Tax Guide


Families that may be subject to an estate tax in 2026 (or after) may benefit from transferring assets and appreciation from their estate sooner rather than later. One of the best estate planning techniques to accomplish this is the Spouse Lifetime Access Trust, or SLAT as it is commonly referred. A SLAT allows the grantor to continue to have backdoor access to trust assets.

Spousal Lifetime Access Trust (SLAT)

Married taxpayers may want to make lifetime gifts to use the balance of their exemptions but may be uncomfortable not having access to the gifted funds. These taxpayers should consider making gifts to a SLAT. The taxpayer who creates the trust will include their spouse as a beneficiary. The donor (grantor) grants the spouse direct access to the SLAT assets by having the spouse as a beneficiary. While this is a completed gift for gift and estate tax purposes, a SLAT is generally taxed as a grantor trust for income tax purposes, allowing the trust assets to grow tax-free for the spouse and any other beneficiaries. The payment of the income tax on a grantor trust does not constitute an additional gift, allowing the grantor to transfer additional wealth free of gift or estate tax.


Over the last two years, the Federal Funds rate has increased from less than one percent to over five percent. Several estate planning strategies advantageous when interest rates were low are less appealing now. With higher interest rates, taxpayers should consider the following techniques.

Charitable Remainder Trust (CRT)

A taxpayer with an asset that has a significant unrealized gain (such as real estate, stocks, or a closely held business) can effectively contribute that asset to a CRT. The trust is tax-exempt (state tax laws may differ) and can effectively sell that asset on a tax-deferred basis. The taxpayer will also get a charitable income tax deduction on their personal tax return in the year of funding.

This deduction amount is partially a function of the section 7520 rate. As interest rates rise, so does the section 7520 rate. The government assumes the remainder interest passing to charity in a rising interest rate environment will be greater than in a low interest rate environment. As interest rates continue to rise into 2023, the tax deduction becomes more powerful.

Qualified Personal Residence Trust (QPRT)

A QPRT is an irrevocable trust that transfers a personal residence to trust beneficiaries. The QPRT lasts for a term of years, during which the grantor may continue to use the residence as their own. Upon the expiration of the trust term interest, the residence is transferred to remainder beneficiaries – often held in further trust to benefit children (to maximize asset protection and tax benefits). If the grantor wants to continue to live in the home after the expiration of the trust term, the trust or its beneficiaries can rent it to the grantor at a fair-market-value rent. The initial transfer to the QPRT is a taxable gift of the value of the remainder interest, calculated using the §7520 rate. The higher the rate, the higher the value of the grantor’s right to use the residence as their own during the term of years, and the lower the value of the gift of the future remainder interest. The taxable gift amount decreases in the current high-interest rate environment, making the QPRT a highly attractive strategy. As an additional strategy, the residence can be transferred from a joint tenancy to a tenancy in common, allowing each spouse to gift their respective ownership interest and receive other valuation discounts.

For example, assume you have a grantor who is 60 years old and owns a residence worth $3,000,000. When the authors wrote this article, the §7520 rate was 5.4%. The grantor can create a QPRT with a 20-year term and transfer the residence with a fair market value of $3,000,000. The taxable gift is the present value of the remainder interest – $607,920. Meanwhile, in the year of funding, the grantor has moved an asset worth significantly more ($3,000,000) into a trust that can provide asset protection and tax benefits at a greatly reduced gift/estate tax cost.

Furthermore, if we assume an after-tax growth rate of 5% on the asset, the value of the residence at the end of the term (20 years) will be $7,959,893! The federal estate tax savings of this plan is $2,940,789. Taxpayers who live in states with a state estate tax will recognize additional tax savings.


Those taxpayers that may incur an estate tax when the tax exemption amount sunsets should consider making gifts outright or in trust to use their exemptions before 2026. However, not all taxpayers may have enough exemption to reduce their estate. While CRTs and QPRTs are most attractive with higher interest rates, the following techniques can still be effective.

Sell Assets To An Intentionally Defective Grantor Trust

  • A taxpayer may sell assets to a grantor trust in exchange for a promissory note. (Real estate owners often are great candidates for this strategy.)
  • By using a grantor trust, the sale of appreciated assets will not trigger income tax. In addition, the grantor will continue to pay income taxes on the trust income, thereby allowing the trust assets to grow tax-free. This strategy is ideal for when there is a high potential for appreciation. Further, the payment of the income tax on a grantor trust does not constitute an additional gift.

Grantor Retained Annuity Trusts (GRATs)

  • With market volatility and some assets still trading at depressed values, a Grantor Retained Annuity Trust (GRAT) enables taxpayers to transfer assets to a grantor trust. The taxpayer retains an annuity interest for years and leaves the remainder to their children.
  • If the assets appreciate during the trust term, the appreciation passes to the heirs without using any of the taxpayer’s lifetime exemption amount.
  • This type of trust can be structured as a zeroed-out GRAT; effectively, no lifetime gift or estate tax exemption would be used on the gift to the trust.

Charitable Lead Trust (CLT)

A CLT can be a beneficial planning technique for those who expect 2023 to be an unusually high year for income due to a one-time event, such as a business sale. If you find yourself in this position, and you have a charitable inclination, then you should consider a special type of trust that allows you to reduce your effective tax rate on the sale of your company (or other asset) while benefitting your favorite charity of choice.

The grantor CLT effectively frontloads a charitable income tax deduction, which can offset other income sources. The trust will then pay an annual unitrust or annuity payout to charities of choice, and at the end of the trust term, the remaining principal can revert to you or your loved ones.

“Taxpayers should also consider state and local tax laws and how they may differ from federal tax laws.”


It is rare for the tax law to allow planning to be done after the close of a taxable year. In the context of fiduciaries, an election available under the code provides for income tax planning between the fiduciary and beneficiary. Thanks to the IRC 663(b) election, known by its street name as the “65-day election,” a fiduciary can elect to treat distributions made within the first 65 days of a year as if they were made during the prior tax year. In effect, this could shift income from the fiduciary to a beneficiary. Beneficiaries are often in lower income tax brackets than a trust or an estate, thanks to the compressed tax brackets of trusts and estates. The highest bracket for a trust or estate for 2023 starts at $14,450 of taxable income. Contrast this to the highest bracket for a taxpayer filing as single, which begins when taxable income exceeds $578,125.

  • This election applies only to estates and non-grantor trusts that file as “complex trusts.” Grantor and non-grantor trusts that are “simple trusts” do not qualify. A simple trust is any trust that requires fiduciary accounting income to be distributed. A complex trust is not a simple trust (i.e., a discretionary trust). The maximum amount of distributions covered by the election is limited to the greater of (1) fiduciary accounting income for the tax year for which the election is made or (2) distributable net income (DNI).

Consult your Marcum tax professional to discuss gift, estate, and income tax planning strategies that may suit your unique facts and circumstances.

Future-Proofing Your Wealth: The Imperative of Proactive Tax Planning

“As the tax environment remains fluid, so too must the strategies employed by those seeking to optimize their financial outlook.”

Proactive tax planning becomes paramount with the federal exemption set to revert to pre-2018 amounts post-2025 and the influence of rising interest rates. Leveraging instruments like the SLAT, CRT, and QPRT, among others, can offer tangible benefits to taxpayers. Additionally, the potential of the 65-day election underscores the necessity to stay informed and agile. In these ever-evolving times, consulting with tax professionals and staying abreast of federal and state tax nuances ensures that one is best positioned to protect and grow their assets for future generations.

2023 Marcum Year-End Tax Guide