New Increased Gift, Estate, and GST Tax Exclusion and Exemption Amounts for 2022
For the first time in several years, the annual gift tax exclusion amount will increase for inflation in 2022 from $15,000.00 to $16,000.00 per individual donor and $32,000.00 for gifts made by a married couple who agree to split their gifts. This increase was announced by the Internal Revenue Service in Rev. Proc. 2021-45, and the adjustment will take effect for gifts of a present interest made on or after January 1, 2022. The annual exclusion gifts may be made directly to your beneficiaries or to trusts that you establish for their benefit. It is important to note, however, that gifts to trusts will not qualify for the gift tax annual exclusion unless the beneficiaries have certain limited rights to the gifted assets (commonly known as “Crummey” withdrawal powers). If you have created a trust that contains beneficiary withdrawal powers, it is essential that your Trustees send Crummey letters to the beneficiaries whenever you (or anyone else) make a trust contribution. In addition to cash gifts, donors should consider gifting securities or interests in privately held companies or other family-owned entities. The assets that you give away now will hopefully be worth significantly less than their value in the future. The increase in value of these assets will create a built-in discount that the Internal Revenue Service cannot reasonably question, which such discount will greatly benefit your beneficiaries in the event those assets increase in value.
The Internal Revenue Service also announced the annual inflation adjustment for the federal lifetime gift, estate, and GST tax exemptions, which increased the amount that is sheltered from taxes (or exempt from being taxed by the federal government) from $11,700,000.00 for 2021 to $12,060,000.00 for an individual and to $24,120,000.00 for a married couple as of January 1, 2022. However, the gift, estate, and GST tax rate remains at a flat rate of 40% for 2022 for taxable transfers consisting of any assets over and above the transferor’s available exemption amount. Although the increased exemption ends on December 31, 2025 (absent congressional action), the Internal Revenue Service has clarified that the government will not “claw back” gifts given between 2018 and 2025, with respect to someone who dies in 2026 or beyond, that exceed $5,120,000.00, when the gift and estate tax exemptions revert back to the $5,120,000.00 exemption amount under the American Taxpayer Relief Act of 2012 on January 1, 2026. This increase may be of particular interest to individuals who previously used all of their gift, estate, or GST tax exemption to facilitate significant lifetime transfers and can gift an additional $360,000 tax free in 2022.
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By: Jonette M. Montgomery, Esq.
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