Estate Planning is Still Possible (and Critical) Despite the Tax Uncertainty

Without the support of Senator Joe Manchin, President Biden’s landmark legislation, the Build Back Better Act, did not pass in 2021. However, this is not to say that Congress won’t try to push it through in 2022 by separating the legislation into two bills or further trimming down programs. This takes us into the new year with the same uncertainty regarding taxation as we had in 2021.

As of Tomorrow, January 1, 2022

In 2022, the estate and gift tax exemption will climb higher to $12.06 million per individual - up from $11.7 million per individual in 2021. In other words, an individual can leave $12.06 million to heirs and pay no estate or gift tax, and a married couple can pass $24.12 million estate and gift tax-free. (One version of the BBB Act included a provision that would have cut the estate and gift tax exemption to about $6 Million.)

In addition, the gift tax annual exclusion amount will increase to $16,000 for 2022, up from $15,000 since 2018. Individuals and couples will be able to give away $16,000 to as many people as they like - children, grandchildren, cousins, friends, and anyone else - with no federal or gift tax consequences. Multiple annual exclusion gifts can add up significantly and do not reduce the $12 million exemption amount. This is an easy way to get money out of one’s estate. You can also make unlimited direct payments for medical and tuition expenses for as many people as you like with no gift, estate, or income tax consequence.

The IRS taxes estates above the threshold at rates of up to 40%. By making gifts and transferring wealth early, the wealthy can lessen the sting of the estate tax. The state in which you reside is another consideration when it comes to gifting strategy. Seventeen states and the District of Columbia levy some form of an estate or inheritance tax, so even if you don’t qualify on the federal level, you might wind up owing taxes on a state level.

The Bottom Line

As we enter the New Year, regardless of what happens with tax legislation, there are steps you can take to prepare. Now is the time to evaluate your situation and identify opportunities to capitalize on new or existing goals. A rise in interest rates could occur several times in 2022. The current low interest rate environment presents a good opening for individuals and businesses to evaluate liquidity needs for funding lifetime gifts or maximizing the tax efficiency of real estate and significant gifts to children and grandchildren. Consider funding a GRAT or reevaluate your charitable giving desires. Set time aside to talk to family members about your wishes and or your family legacy. Check your beneficiary designations. Most importantly, if you do not have a will or trust, or if it's been more than four years since you've had your estate plan reviewed, now is the time to do so. Contact us to schedule a consultation today!

Share This Story, Choose Your Platform!


Receive our new blog articles in your email inbox.
  • This field is for validation purposes and should be left unchanged.


Recent Posts

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram