Estate and Gift Tax Update for 2022

Even though there were various proposals in Congress in 2021 about making changes to the estate planning opportunities, nothing actually changed for the 2021 tax year. As we move closer to the 2021 tax year filing deadline, here is some important information regarding changes to the estate, gift, and generation-skipping tax for the year 2022:

• The federal estate and gift tax exemption for 2022 has increased from $11,700,000 to $12,060,000 per spouse. This amount is eligible to be used either during your life or at death. For any amount exceeding the exemption, you will be taxed at a flat 40% tax rate.
• The generation-skipping exemption is also at $12,060,000 per taxpayer. If married, the exemption is $24,120,000.
• The annual gift tax exemption for 2022 has increased from $15,000 to $16,000 per donee ($32,000 if the donor is married).
  • Gifts that are paid directly to an institution or medical provider for tuition and/or medical expenses remain unlimited.
  • You are still able to make larger gifts to Section 529 plans (for college funding) which can be spread over a 5-year period. Thus, the maximum contribution could be $80,000 per donee or $160,000 if made by a marital couple.

Things to think about

The lifetime estate and gift tax exemption is scheduled to decrease to pre-2018 levels in 2026. This means the exemption would decrease to $5 million adjusted for inflation for 2026. Therefore, to take advantage of the current tax exemptions, a tax saving strategy is to contribute gifts before the decrease. The benefit of gifting now will allow you to save on taxes on the future appreciation of your assets.

At the state level

Some states may also subject your estate to an estate tax. Please consult with your UHY tax specialist to determine if you may be subject to a state estate tax.

What you can do

Since the estate and gift lifetime exemption is scheduled to be reduced (at least by 2026 if not changed by Congress sooner), you may want to use some or all of your exemption before this happens. There are different methods which can be used to help reduce your overall estate tax exposure. Please consult with your UHY estate planning specialist to discuss any issues you may have.