Client Alert: 2022 Changes to Estate and Gift Tax Exclusion Amounts
Date: January 20, 2022
2022 Federal Estate and Gift Tax Amounts
- Federal Exemption Amount. The amount which can pass free of federal estate, gift and generation-skipping taxes (“the federal basic exclusion amount”) has increased in 2022 from $11.7 million to $12.06 million per person. Thus in 2022, unmarried individuals may exempt $12.06 million from federal estate and gift tax, and married couples may exempt $24.12 million. The estate tax exemption will remain “portable” between spouses, meaning that a surviving spouse may use his/her deceased spouse’s unused exclusion amount if elected on a timely-filed estate tax return. The exclusion amount is scheduled to decrease drastically on January 1, 2026 to $5 million per person, indexed to inflation, if not reduced before that date through tax reform legislation. Pursuant to a 2019 regulation issued by the IRS, use of one’s federal estate and gift tax exemption between January 1, 2018 and December 31, 2025 will not cause a later recapturing, or “clawing back,” of the increased exemption amount used. The exemption increase and clawback protection create opportunities for clients wishing to utilize their higher exemptions during their lifetimes before the exemptions sunset. For those looking to take advantage of these opportunities, we are happy to discuss various planning techniques which may be appropriate based on each client’s personal and financial circumstances.
- Annual Exclusion for Gifts. The annual exclusion from gift tax (i.e. the amount that may be gifted annually to individuals without tax consequence) has increased from $15,000 to $16,000 per recipient for 2022 after being set at $15,000 for the past four years. This means married couples will be able to gift up to $32,000 per year per recipient without causing a reduction of their combined federal estate and gift tax exclusion of $24.12 million.
- Build Back Better Act. Although the federal estate and gift tax exemption has been steadily increasing since 2018, absent further congressional action, the exemption is set to be cut in half at the start of 2026. An earlier version of the Build Back Better Act did include a provision that would have cut the exemption in half at the start of 2023, but has since been removed from the latest version of the bill. Due to legislative uncertainty surrounding the exemption, if you are interested in using your higher exemption now, we encourage you to contact our office to discuss various planning techniques and options which may suit your needs.
Maryland Estate Tax
- The Maryland estate tax exemption remains at $5 million per person, and like the federal estate tax exemption, is portable between spouses. With respect to gift tax, Maryland has no state gift tax.
Virginia Estate Tax
- Virginia repealed its estate tax in 2007 and continues to have no state estate tax and no state gift tax.
District of Columbia Estate Tax
- DC’s estate tax exemption was reduced to $4 million per person in 2021 and will be adjusted annually for cost of living adjustments starting in 2022. With the adjustment, the 2022 exemption amount is projected to be approximately $4,254,000. Unlike the federal exemption, there is no provision for portability of the DC estate tax exemption between spouses. Like Maryland and Virginia, DC has no gift tax.
The start of the new year is an excellent time to review and update your estate plan to be certain that your personal goals continue to be achieved and to assess the impact of the new laws on your existing plan. Irrespective of taxes, there are many nontax issues which a well-designed estate plan should address, such as guardianship of minor children, planning for loved ones with special needs, family business succession and asset protection. We encourage you to contact our office at your convenience to discuss your current estate plan and ensure that it continues to meet your goals and needs.
We look forward to the opportunity to continue to serve you in the future.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.