`Tis the Season for Gift & Estate Tax Changes

December 20, 2021 Austin DuBois

What does the IRS have in store for you in 2022?

Taxpayers’ letters to Santa were not only received, but answered by the Internal Revenue Service this year!

In its recently published document, Revenue Procedure 2021-45, the IRS shared its updated estate and gift tax exemption numbers for 2022. That is, the total amount of gifts a person can pass along to their loved ones without taxation. The good news is, the new figures allow for a ho-ho-whole lot more generosity and asset protection than before! (*groan*)

Keeping an Eye on Legislation
As the Build Back Better Act was initially being developed, subsequently revised, and eventually passed by the House in November, Trusts & Estates attorneys everywhere were keeping our eyes on a couple of details in particular. Some conventional thinking was that the Democrat-controlled legislature may choose to bring allowances for estate and gift taxes down. Instead, the law was kept the same, so they were increased on pace with inflation.

Estate and gift tax considerations mean quite a bit to people working with Trusts & Estates attorneys to manage their wealth and create sound plans for comfortable futures, either for themselves or their loved ones. However, the details of those taxes can often get lost in the myriad tax-related issues that become talking points in the news. That is because the money that the IRS collects from estate and gift taxes is, in reality, not all that much when compared to others. So, it behooves us to stay abreast of the changes we need to share with our clients.

Giving Greater in 2022
If you are looking to relax this holiday season with a cup of cocoa and some light reading, you can settle into your easy chair and check out the “page turner” that is the unabridged Revenue Procedure 2021-45, by clicking here.

Better yet, allow me to highlight the two key takeaways that you will want to explore further with our team at DuBois Law Group or your current elder law attorney.

  • Estate Tax Exclusion Amount… Raised!
    • The estates of decedents who die during 2022 have a basic exclusion amount of $12,060,000, up from a total of $11,700,000 for estates of decedents who died in 2021.
  • Gift Tax Exclusion Amount… Raised!
    • The annual exclusion for gifts increases to $16,000 for calendar year 2022, up from $15,000 for calendar year 2021.

These figures represent the IRS’s inflation-adjusted numbers for 2022, and the first time in quite a while that the annual gift tax exclusion amount will have been increased. In short, that means an individual can leave a total of $12.06 million to whomever they please, without having to pay any federal estate or gift tax. A married couple can give away $24.12 million, tax-free.

Individuals can give gifts of $16,000 to loved ones with no federal gift tax consequences (but it could definitely affect your Medicaid “Look Back Period”!) In the case of spouses, each can give away that amount, essentially doubling the gift amount while still not being hit with a tax.

These increases to the exemption amounts are set to go into effect on January 1, 2022.

Double Check the State of Things
There are 17 states – plus the District of Columbia – that levy their own estate and/or inheritance taxes. Our beloved New York is among them, with a 2021 exemption of $5,930,000. This will increase with inflation for 2022, but that number has not yet been released. Some state laws can be quite different from federal laws – from allowable amounts to taxation timelines, and other vital details – so we always advise our clients that it is very important to know and understand how state-level laws can affect their estate planning and giving.

For Now, Not Forever.
If you are of the means to take advantage of this good news, you will want to do so sooner rather than later. Although the estate and gift tax exemption increases to $12.06 million next year, it is set to be cut in half at the start of 2026. That readjustment was first planned for the beginning of 2023, but was moved out an additional three years in an early November revision to the Build Back Better Act.

Don’t Forget Community Medicaid
Remember when I wrote this blog about the “look-back period” that is being planned for Community Medicaid users? Well, the move to implement that look-back has been delayed yet again. While there does not appear to be a change to Community Medicaid in the offing for 2022, we are encouraging people to make a note that the talks continue and that a look-back period will eventually be put in place. It is something that will have an impact on people’s planning, so we’ll keep an eye on the developments, and so should you.

Finally, happy holidays! On behalf of everyone here at DuBois Law Group, I hope the warmth and light of the season bring you comfort and peace, and that all of your celebrations are filled with togetherness and with love.