The Internal Revenue Service recently announced new inflation-adjusted limits for 2023 that will allow well-off folks to transfer much more to their heirs’, tax free, during life—or at death. One key gifting change is to the annual exclusion: your clients will be able to give anyone else (and as many people as they want) $17,000 in gifts in 2023, without worrying about using up their lifetime gift and estate tax exclusion or paying gift tax. That’s up from $16,000 in 2022. The other big change: the lifetime estate and gift tax exemption (also known as the unified credit), will jump to $12.92 million in 2023, up from $12.06 million in 2022. Since couples share their exemptions, it means a wealthy couple that starts making gifts in 2023 can pass on $25.84 million. Another way to look at it: if they have already maxed out their nontaxable gifts, they can give an extra $1.72 million to their heirs in 2023. That’s in addition to making $34,000 per couple (two times $17,000) in annual gifts to each child, grandchild, sister, brother, niece, nephew, neighbor, or friend they’re feeling generous towards. In addition to making annual $17,000 gifts, you can also pay unlimited amounts for anyone’s tuition or medical expenses, without eating into your lifetime exemption, so long as you make those payments directly to the school or medical provider. The estate tax is assessed at a 40% rate for the largest estates, but the $12.92 million per-person lifetime exemption is only a starting point for the very rich when it comes to wealth transfer. A variety of planning techniques can be used to leverage that exemption. Note that unless you’re ready to part with assets during your life, that new $12.92 million exemption number is not guaranteed. Under the 2017 Tax Cuts and Jobs Act, that lifetime exemption will fall by more than half at the start of 2026. At the end of 2025 the sunset provision of the tax law will reduce the lifetime exemption to $6,000,000. There is discussion about it being indexed for inflation and that could go to 7,000,000+. However, given the current deficit and the appetite for taxes in Washington, this number could be as low as 3 to 3 1/2 million. When January 1, 2026, arrives, not if, some of your clients may have drastically different estate tax exposure than they do today. Think ahead and plan ahead! People don’t plan to fail; they fail to plan. What are the action steps for advisors today? Number one, identify your clients who have a net worth currently in excess of $5 million. Especially those with large, qualified plans, because those clients have beneficiaries that will be taxed as ordinary income on their qualified plan inheritance and the entire qualified plan will also be subject to 40% of estate tax. For some beneficiaries that could be between a 70% and 80% total tax rate as a beneficiary of a qualified plan. Number two, have the courage to have these difficult conversations. When the tax bill is due the beneficiaries always look for the path of least resistance, that is to liquidate assets that investment advisors are managing. Stocks and bonds may be sold before real estate. Don’t let this affect your AUM. And lastly, work with a good advisory team. It’s free to have a good conversation and it may save your clients and their beneficiaries millions of dollars at the same time preserving your valuable book of business.