2022 Federal Tax Update on Estate Planning

This Federal Tax Update provides information on federal tax issues related to estate planning. It is available as a starting point for the new year. You should consult your estate planning attorney before you take any transfer tax planning actions, as Congress may pass legislation to change this information.

The Key Tax Concepts of 2022

Increased Lifetime Exclusion to $12,000. However, the transfer tax exclusion amounts will decrease to $5,000,000 on January 1, 2026. This is adjusted for inflation.

Annual exclusion increases to $16,000: On January 1, 2022 the federal gift tax annual exemption amount (i.e. the amount an individual can transfer annually to another person without any lifetime gift exclusion or paying any tax on gift) has increased by $1,000 from $15,000 – $16,000 for married couples to $32,000 –

The applicable federal tax rates for estates and trusts remain the same:

The federal estate, gift, and GST tax rates are the highest at 40%.

37% is the highest federal income tax rate applicable to estates and trusts that are not granted. This tax rate is applicable to taxable income earned by non-grantor or estate trusts during their administration period.

Requirements Minimum Distributions: The new life expectancy tables that are used to determine required minimum distributions (RMDs), from IRAs or qualified retirement plans, went into effect on January 1, 2022. These changes affect traditional (non-Roth IRA owners) who have reached the Required Beginning Date to take RMDs, participants in qualified retirement plans who have reached the Required Beginning Date to take RMDs, as well as beneficiaries of inherited IRAs or qualified retirement plans. For more information on how to calculate your RMDs for the calendar year 2022, please contact your financial advisor or plan administrator.

Step-Up in Basis There were several proposals to amend this law in Congress, but they were not passed by Congress in 2021. Therefore, the step-up basis at death is still in effect for 2022.

Federal Estate Tax Portability. The ability to transfer a deceased spouse’s unutilized federal estate exclusion amount by filing a federal tax return (often called “portability”) is still in effect until 2022.

Update on Build Back a Better Act

On November 19, 2021, the House of Representatives approved the Build Back Better Act. The Senate has yet to vote on the Act as of this Federal Tax Update. The House-passed Act does not alter the top 37% federal income rate on ordinary income, the top 20% federal tax rate for long-term capital gains, qualified dividends, the top 40% federal tax rate, the federal transfer taxes exclusion amounts or adversely impact the use grantor trusts in estate planning. If the House-passed Act is enacted into law, it will impose a 5% federal income tax on modified gross income above $10 million for both unmarried couples and married individuals filing jointly, or on modified gross income over $200,000 for estates, and non-grantor trusts. A 3% federal income tax would also be added to modified adjusted income above $25 million for unmarried persons and married individuals filing jointly, or modified adjusted income exceeding $500,000 for estates, non-grantor and trusts. The House-passed Act also includes a variety of federal tax law modifications. Important federal tax laws may change in 2022 as Congress continues to negotiate legislation. Before you take any tax planning actions, it is a good idea to consult your Lathrop GPM estate planning lawyer.

For more information, contact your estate planning attorney

You should consider having your estate plan and business succession plans reviewed in light of these changes. This will help you to make sure that your documents are still meeting your tax and non-tax planning goals. To ensure your estate plan reflects your wishes, and to inquire about estate planning opportunities, please contact your estate planning lawyer.