PublicationEach year, the IRS considers inflationary adjustments to the estate and gift tax exemption amount and gift tax annual exclusion amount. As you contemplate your estate planning or making gifts during the new year, here are the numbers that were published for 2022:
2022 Exemptions and Exclusions: The estate and gift tax exemption amount has increased from $11.7 million per person to $12.06 million per person in 2022. The 2022 generation-skipping transfer tax (GST tax) exemption amount has also increased to $12.06 million per person. However, if no action is taken by Congress to change the current law prior to December 31, 2025, these heightened exemption amounts will revert to pre-2017 Tax Act levels of $5 million per person (as upwardly adjusted for inflation) on January 1, 2026. Projections show that the exemption would be approximately $6.5 million per person at that time. The current higher exemptions provide an excellent opportunity for planning lifetime transfers to minimize total taxes.
Every year, each person is allowed to make a gift to another person up to a certain amount without incurring any gift tax liability – this is known as the “annual exclusion.” The annual exclusion is a powerful tax-saving tool because the person making the gift can transfer wealth without using any of his or her estate and gift exemption amount and without needing to file a gift tax return. For many years, the annual exclusion has been $15,000. However, starting in 2022, the IRS announced that the annual exclusion is now $16,000. This means that a donor can give up to $16,000 to an unlimited number of persons without incurring gift tax or the obligation to file a gift tax return. For example, married couples can give each child and grandchild up to $32,000 in 2022 without incurring any gift tax liability and without using any estate or gift tax exemption.
January 2022 Interest Rates: Continuing with the trend of record-low interest rates, the IRS has released adjusted applicable federal rates (AFRs) for January 2022. The annual short-term (under three years) is 0.44 percent, annual mid-term (three to nine years) is 1.30 percent, and annual long-term (more than nine years) is 1.82 percent.
Planning Opportunities: Current factors, such as depreciated asset values resulting from the COVID-19 pandemic, record-low interest rates, and historically high estate and gift tax exemption amounts, provide unique opportunities to minimize your tax exposure. In a previous alert, which can be found here, we discussed several tax-efficient strategies to consider, including intra-family loans; Grantor Retained Annuity Trusts; sales to Intentionally Defective Grantor Trusts; and Charitable Lead Annuity Trusts. In addition, taking advantage of the higher exemption amounts now, particularly for single individuals with an anticipated gross estate in excess of $5 million and married couples with a combined anticipated gross estate in excess of $10 million, should also be considered.
As we flip our calendars to 2022, let’s start the conversation about tax-saving estate planning techniques that are available to you. Please contact one of Michael Best’s Wealth Planning attorneys to explore planning opportunities, especially if you are considering making lifetime gifts. Related People Preview Attorney's BiographyJoseph focuses his law practice in the area of wealth planning for businesses, organizations, and individuals. He counsels clients on matters involving wills, trusts, estates, powers of attorney, and marital property agreements. Joseph also assists clients with tax planning, business succession planning, charitable planning, and other related considerations.  Preview Attorney's BiographyJulie’s outstanding track record is built on successful outcomes in legal matters related to estate planning, trust administration, and probate. Clients rely on her sound judgment regarding lifetime planning, as well as the administration and distribution of assets at death.  Preview Attorney's BiographyBrad’s practice includes all areas of estate and business succession planning. He serves as a trusted advisor to individuals, families, and companies seeking to cost-effectively structure or transfer businesses. Clients value Brad’s responsiveness, particularly his ability to help them understand complex property and tax law concepts.  Preview Attorney's BiographyPhil has more than 20 years of experience assisting individuals with estate, wealth, and business succession planning and helping businesses with corporate and real estate matters. As an estate planner, Phil knows that transferring wealth effectively requires the preservation of family relationship. When advising clients and their families, he devotes significant time to communicating with members of each generation. He strives to develop practical plans that carry out his clients’ wishes and minimize taxes, while also providing the flexibility needed to address unforeseen circumstances.  Preview Attorney's BiographyVirginia is an estate planning and business law attorney. She helps clients establish estate plans that efficiently transfer wealth to the next generation, including the preparation of wills, trusts, and powers of attorney. She also advises and guides executors, trustees, and beneficiaries through the estate administration process. In her corporate practice, Virginia advises companies, nonprofits, and start-ups through all stages of their lifecycles, including entity formation and dissolution, contract review and drafting, and corporate acquisitions, sales, and financing.  Preview Attorney's BiographyA partner in the Wealth Planning area of the firm’s Transactional Practice group, Katherine concentrates her practice on wealth planning and local government law in Northeast Wisconsin. High net worth individuals turn to Katherine for strategic advice on how to protect and preserve their wealth – and create legacies for future generations. Her wealth planning practice focuses on estate planning and succession planning, with a strong emphasis on elder law and agricultural related matters.  Preview Attorney's BiographySheila works with clients to help them preserve and protect their wealth – and plan for its stewardship in the future. She takes the time to understand each client’s unique circumstances and goals. She then works compassionately and creatively with clients to devise personalized estate plans that are tailored to their needs and save taxes. Sheila regularly lectures on estate planning and charitable giving topics.
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