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Key Takeaways & Insights

President Biden’s Build Back Better bill is still winding its way through Congress. In the meantime, the IRS has issued its 2022 annual adjustments for numerous tax provisions.

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These include the following exclusions for gift, estate, and generation skipping transfers:

  • Transfer tax exemption for lifetime gifts, death transfers, and generation-skipping transfers
  • Gift tax annual exclusion
  • Other payments excluded from the annual and lifetime gift exemption

2022 Annual Adjustments for Tax Provisions

Transfer tax exemption for lifetime gifts, death transfers, and generation-skipping transfers
The annual inflation adjustment for federal gift, estate, and generation-skipping tax exemption increased from $11.7 million in 2021 to $12,060,000 million in 2022. For married couples, the exclusion is now $24,120,000 million. The gift and estate exemption is unified, meaning it includes both an individual’s lifetime taxable gifts and taxable estate at death. The generation-skipping exemption is a separate limit and applies to transfers to grandchildren, outright or in trust, and to certain other individuals aged 37.5 years younger than the transferor.

Unless additional tax legislation is enacted, the higher exemption annually indexed for inflation is good through 2025. Additionally, in late 2019, the IRS clarified that individuals taking advantage of the increased gift tax exclusion up to 2025 will not be adversely impacted when the exclusion amount is scheduled to drop to pre-2018 levels.

Other payments excluded from the annual and lifetime gift exemption
The gift tax annual exclusion allows taxpayers to make certain gifts without using their lifetime exemption amount. In 2022, the gift tax annual exclusion increased to $16,000 per recipient. Outright gifts to recipients qualify for the annual exclusion.

If the gifts are made via trust, the trust must be written to include a “Crummey withdrawal power” to qualify as a present interest gift for the annual exclusion. Crummey powers give a beneficiary a limited time — often 30 or 45 days — to withdraw contributions to a trust thereby converting the future interest gift to a present interest gift. The withdrawal right is generally limited to an amount equal to the current annual gift tax exclusion.

A separate gift tax annual exclusion for gifts to spouses who are not U.S. citizens increased to $164,000.

Gift tax annual exclusion
Tuition payments made directly to the recipient’s educational institution and medical payments (including medical insurance) paid directly to the recipient’s medical or insurance provider are excluded from the annual and lifetime gift tax exemption.

The same exemptions are true for gifts to a spouse who is a U.S. citizen and qualifying charitable organizations.

Additional Resource: irs.gov

What This Means for You

Even if your estate is not subject to a federal estate tax, you or your heirs may not necessarily be off the hook. Your estate might be subject to a state estate tax. Exemptions for state estate taxes are often much lower than the federal estate tax exemption. On top of that, some states charge heir a state inheritance tax.

The everchanging landscape of federal estate and gift tax laws present both planning opportunities and challenges. Proper planning is key.

Contact your team at Cerity Partners to review your individual situation. We specialize in wealth protection, transfer strategies, asset titling and beneficiary review, charitable planning, and gift coordination. All our recommendations are tailored to a client’s unique situation, and they reflect our expansive knowledge of estate, trust, gift, and tax laws. Contact us today to learn more about this critical facet of guarding your future wealth.

For more insights, contact a Cerity Partners advisor or visit the thought leadership section of ceritypartners.com.


Please read important disclosures here.


Meet the Author

Judith Gordon

Principal

Judy is a Principal based in the Silicon Valley office. She provides consulting advice for private clients and advisors on estate planning, wealth-transfer strategies, d trust and estate administration, and charitable planning. With her extensive law background, Judy works collaboratively with clients and their tax advisors and estate planning attorneys to ensure that their strategies are consistent with their overall financial and estate plans and to manage, preserve, and grow their wealth for their family and philanthropic goals.

Prior to joining Cerity Partners, Judy worked as an Estate Planning Advisor at B|O|S and served as a member of the Financial Planning Team. In this role, Judy helped clients navigate significant life changes, minimize their tax burden, and identify goals and strategies for legacy planning. Prior to joining B|O|S, she enjoyed a 35-year legal career in sophisticated gift and  estate tax planning, charitable planning, and probate and trust administration.

Judy earned her Bachelor of Arts in Psychology from the University of Florida and her Juris Doctor degree from Georgetown University. She also received her Master of Laws from New York University.

Connect with Judith

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