Increasing Estate Tax Exemption in 2022
By: Barry E. Haimo, Esq.
March 3, 2022
Each year, the federal estate tax exemption changes to reflect inflation in the US economy. And in addition to the estate tax exemption, the federal gift tax exclusion amount is increasing as well.
But with potential tax legislation pending in Congress for 2022, these adjustments could be subject to change. So it’s important to understand how these annual exemptions affect your estate plan now – and how they may change in the coming year.
Estate Tax Exemption
If your estate is under a certain value at the time of your death, you are not subject to the federal estate tax. The name for this value your estate must fall below is the exemption amount. For 2021, the exemption amount was set at $11.7 million dollars for individuals and double that amount for married couples.
Due to inflation, the estate tax exemption has risen this year to $12.6 million dollars. This means that, if you pass away in 2022 and your estate is valued at this amount or more, it will be subject to taxes.
The History of the Estate Tax Rate
The annual rise of exemptions is nothing new. But the exemption amount has changed considerably throughout the years. And for wealthy Americans whose estates exceed the exemption amounts, the tax rate variance can deeply affect their estate.
For amounts up to $1 million over the exemption rate, an estate is taxed anywhere between 18-39% percent, which is a sizable range. And when an estate’s value exceeds $1 million over the exemption rate, it is taxed at 40%. That’s a steep tax!
The Annual Gift Tax Exclusion
You should also note how the annual gift tax exclusion is changing alongside the estate tax exemption for 2022. The amount an individual can gift someone else without being subject to a lifetime gift tax exclusion (or any gift taxes) is up from $15,000 in 2021 to $16,000 in 2022. And for those individuals with non-US spouses, the annual gift tax exclusion is up to $164,000.
How Does This Increase Affect Me?
- It’s important to know how the changing amounts can impact your estate plan and to update it accordingly.
- If you know your estate will exceed the exemption amount for 2022, there are ways to minimize taxes on your estate. Hiring an attorney who specializes in estate tax planning strategies is highly recommended and can help you protect your assets.
- Due to potential legislative changes for 2022, year-end planning is more important than ever.
- The Build Back Better Act (BBB) proposed by President Biden could alter federal tax laws, and taxpayers could potentially lose extra tax exemptions. Gifting intra-family loans and trusts as advised by an estate planning attorney can help protect your estate.
Be prepared for how the increase in tax exemptions and changing federal tax laws can impact you and your estate. Check out our Crash Course on Estate Planning for the basics, then reach out today to see how Haimo Law’s 4-step unique proven process can help you leave a legacy for your loved ones.
Barry E. Haimo, Esq.
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