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Have you heard? The official estate and gift tax exemptions have been climbing in a big way. The new numbers essentially mean that wealthy taxpayers can transfer more to their heirs tax free during life—or at death. A lot more. Questions? We are here and this is what we do — in excellence!

The official estate and gift tax exemption climbs to $12.06 million per individual for 2022 deaths, up from $11.7 million in 2021, according to new Internal Revenue Service inflation-adjusted numbers. And the gift tax annual exclusion amount jumps to $16,000 for 2022, up from $15,000 where it’s been stuck since 2018. 

The new numbers essentially mean that wealthy taxpayers can transfer more to their heirs tax free during life—or at death. A lot more. 

The IRS announced the new inflation-adjusted numbers in Rev. Proc. 2021-45. We have all the details on 2022 tax brackets, standard deduction amounts and more—including for trusts & estates. We also have the news on 2022 retirement account limits, including the higher $61,000 overall 401(k) contribution limit, too.

The estate tax is assessed at 40% on the biggest estates. By transferring wealth to heirs early, the rich can avoid the estate tax. They do so by making big gifts—typically in the millions that eat up the $12 million exemption amount—and by making lots of $16,000 annual exclusion gifts that don’t count against the $12 million.

In 2022, an individual can leave $12.06 million to heirs and pay no federal estate or gift tax, while a married couple can shield $24.12 million. For a couple who already maxed out lifetime gifts, the new higher exemption means that there’s room for them to give away another $720,000 in 2022.

“We always prefer clients make lifetime gifts rather than waiting to die and use the exemption at death because when you’re making a lifetime gift you’re really leveraging that exemption amount,” says Toni Ann Kruse, an estate lawyer with McDermott Will & Emery. Example: Make a $10 million gift today. Assets worth $10 million are out of your estate, and any growth on the $10 million is outside of your estate.

Separately, you can give away $16,000 to as many individuals—kids, grandkids, their spouses—as you’d like with no federal gift tax consequences. Spouses can each make $16,000 gifts, doubling the impact. A series of $16,000 annual exclusion gifts can add up, and they don’t count toward the $12 million exemption amount. “We always encourage our clients to make annual exclusion gifts,” says Kruse. “Do it annually.” And make those gifts as soon as possible rather than waiting until the end of the year. Why? You’re betting on any appreciation happening outside of your estate.

You also can make unlimited direct payments for medical and tuition expenses for as many people as you’d like, with no gift or estate tax consequences. “Those can be very powerful,” Kruse says.

For the wealthy making big gifts, there are many ways to get money out of their estate: outright gifts, loans to family members and special trusts. “Many of our clients have started and completed these gifts. If you’re thinking about it, get busy now,” says Joan Crain, Global Family Wealth Strategist at BNY Mellon Wealth Management. In any case, she insists, check that your basic estate plan documents are up to date: a will and/or revocable living trust, a durable power of attorney, a healthcare directive and a living will.

The $12 million estate tax exemption is set to be cut in half at the start of 2026. The 2017 Tax Cuts and Jobs Act temporarily doubled the estate tax exemption from 2018 through 2025, so it went from $5.49 million in 2017 to $11.17 million in 2018, indexed for inflation. This year, an early version of the Build Back Better Act included a provision that would have cut the exemption in half, but it was dropped from the latest November 3 legislative text. The Joint Committee of Taxation estimated the provision would raise $54.3 billion over ten years, with most of the revenue gain in the first five years, because of the 2025 sunset of the doubled exemption.

Another reason to make gifts: If you live in one of the 17 states or the District of Columbia that levy separate estate and/or inheritance taxes, there’s even more at stake, with death taxes sometimes starting at the first dollar of an estate (See Where Not To Die In 2021).

Your plan is our purpose. Our experienced team will help you and your family members prepare for the challenges of estate planning. Let us help you protect your family’s future! Tackle this important matter with support from our experienced attorney. Connect with us today for a complimentary consultation at (561) 288-9788, and join our Facebook community.

Reference: [https://www.investopedia.com/articles/retirement/10/estate-planning-checklist.asp]