Changes in Federal and State Estate Tax Exemptions

As the new year begins, it is important to note the significant changes to the federal and state estate tax exemptions. These changes have the potential to greatly impact the tax liability of estates and the distribution of assets upon the death of a loved one.

First and foremost, the federal estate tax exemption for decedents dying in 2023 has been increased to $12,920,000, a notable increase from $12,060,000 in 2022. This means that individuals will be able to pass on more of their assets to their loved ones without incurring estate taxes at the federal level. However, it is important to note that state estate tax exemptions may vary and may not align with the federal estate tax exemption. For example, Maryland residents will have a state estate tax exemption for decedents dying in 2023 that remains at $5,000,000. This is a significantly lower amount compared to the federal estate tax exemption, and as such, Maryland residents will need to be mindful of the potential state tax liability when planning their estates.

On the other hand, residents of Virginia will not have to worry about state estate taxes as the Virginia estate tax was repealed in 2007. As a result, the federal estate tax exemption will be the only one that applies to them, providing them with a higher level of flexibility in terms of estate planning. Residents of Washington DC will have to wait for the estate tax exemption to be released for 2023. In 2022, the DC estate tax exemption was $4,254,800.00. We anticipate that the 2023 estate tax exemption will be adjusted for inflation, which means that it will likely be higher than the 2022 exemption.