2022 Gift and Estate Law Tax Changes
By: Barry E. Haimo, Esq.
February 3, 2022
If you have a taxable estate, you are probably aware of both the estate tax changes and gift tax changes that happen annually. However, 2022 has brought some notable changes to both federal taxes that might impact your estate.
The federal estate tax is up from $11.7 million in 2021 to $12.06 million for 2022. Whether your estate will be affected by this change or you are the personal representative of a wealthy estate whose worth exceeds this amount, knowing these changes is vital to avoid passing on a hand grenade to beneficiaries
Thankfully, there are helpful ways to reduce your taxable estate now, including making annual gifts. But before you start cutting checks, make sure you know the gift law tax changes in effect for 2022.
Estate Tax Changes for 2022
Estate tax changes happen every calendar year and taxes are adjusted due to inflation. The federal estate tax exemption is the amount your estate must be below to avoid estate taxes after your death.
The exemption at $12.06 million this year means any amount left in your estate over this amount is subject to federal taxes. Under the new estate tax changes, a married couple’s exemption is at $24.12 million for 2022.
Due to the steep amount of the estate tax exemption, only 0.1% of American households filed a Form 706 Tax Return in 2020. And even fewer Americans paid taxes on it. But larger estates still took a hit when it came to taxes. Fortunately, there are ways to reduce your estate tax.
Gift Law Tax Changes for 2022
When you take the time to plan ahead with an attorney who specializes in estate planning, you can be sure your assets are protected. One way to avoid or minimize estate taxes is to make fiscal gifts to loved ones.
There are two types of gifts that can be given to help off-set estate taxes: the annual exclusion and the lifetime exemption. The lifetime exemption is the total amount of money you can gift (in life or death) free of taxes. It’s up to $12,060,000 in 2022. This amount doubles for married couples.
Individual gifts you make each calendar year that don’t affect your lifetime exemption are your annual exclusion. For 2022, the annual exclusion per individual is $16,000. This means this is the maximum amount you can give to one person for the year that isn’t subject to gift tax law. But you can give this amount to as many people as you wish without filing a gift tax return.
Proven Ways to Reduce Your Estate Taxes
Keep in mind that gifts are not just cash, but any asset of value, including cars, real estate, and luxury goods. It’s also important to understand that if you gift an amount over the exclusions (or use up all of your exclusions), you will likely have to pay gift tax, which can be anywhere from 18% to 40%!
Fortunately, there are exceptions to the gift tax law.
The following gifts are not considered taxable and can help reduce your overall estate taxes:
- Gifts to a political organization
- Gifts to a charitable organization
- Gifts to your spouse, provided they are an American citizen (if they aren’t there is a $164,000 limit before taxes for 2022).
- Gifts to individuals under $16,000 (the annual exclusion, explained above)
- School tuition or medical expenses on behalf of someone else, paid directly to the organization
Remember, estate and gift tax changes happen annually, so it’s important to stay prepared and understand how these changes will affect you. And on January 1, 2026, the estate tax exemption will plunge back down to $5.6 million unless legislation is passed to change it. That means, in a few short years, many more Americans will be subject to steep estate taxes after their death.
This is why it’s important to plan ahead with Haimo Law to protect your family, assets and business. We can help you leave a legacy you can be proud of, while achieving your estate planning goals.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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