Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some
continued education for some credentials I maintain and it occurred to me that
we all could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
New
Higher Estate And Gift Tax Limits For 2022: Couples Can Pass On $720,000 More
Tax Free
If you're thinking about gifting, get busy now.
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).
Further Reading:
IRS Announces 2022 Tax Rates, Standard Deduction
Amounts And More
IRS Announces Higher 2022 Retirement Account
Contribution Limits For 401(k)s, Not IRAs
Maximum Social Security Taxes Will Increase 2.9%,
While Benefits Will Rise 5.9% In 2022
(As with any of these informative articles,
anyone who needs someone to talk to about
this
very subject contact me and I can direct you to a knowledgeable advisor).
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