The tax rate on gifts in excess of $12,060,000 remains at 40%.ī. The cumulative lifetime exemption increased to $12,060,000 in 2022 until after 2025 (indexed for inflation). Gift Tax: The tax-free “annual exclusion” amount has increased to $16,000 in 2022. The 2018 Tax Act provided for an increase in the transfer tax exemption from $5,000,000 to $10,000,000 (indexed for inflation ) until after 2025. The major changes made in 2010 in the law regarding gift, estate, and generation-skipping transfer (“GST”) taxes (collectively, “transfer taxes”) are now permanent, although any new Congress could amend them. The discussion below assumes that none of the foregoing proposals is enacted.Ģ. All taxpayers would be unable to convert after-tax money held in an IRA or qualified plan to a Roth account (a so-called “back-door” Roth conversion) under another proposal. “High-Earners” and Roth IRA Conversions: One proposal eliminated conversions of traditional IRAs to Roth IRAs for taxpayers whose incomes exceed $450,000 filing jointly, $400,000 for single taxpayers, and $425,000 for taxpayers filing as heads of household, effective for tax years after December 31, 2031. Stepped-Up Basis: There is a concern that new legislation might eliminate the stepped-up basis available when a taxpayer dies, although neither the House Bill nor the Senate Bill so provided last year (see paragraph 11).ĭ. These grantor trusts include grantor retained annuity trusts (GRATs), intentionally defection grantor trusts (IDGTs), qualified personal residence trusts (QPRTs), irrevocable life insurance trusts (ILITs), and others.Ĭ. It is likely that any such changes will be effective on the date of enactment and that grantor trusts currently in existence will be grandfathered in whole or in part under any new law. This may affect which, if any, grantor trusts will remain as viable estate planning vehicles for individuals. Such provisions were included in the House Bill but not in the Senate Bill. Grantor Trusts: The new legislation may include changes to the taxation of grantor trusts (trusts over which the grantor retains certain powers over trust assets causing the grantor to be subject to taxation on trust income). No reductions were included last year in either of the House or Senate Bills.ī. In the face of the potential of reduced lifetime exclusion amounts for estates and gifts, donors may consider lifetime gifts this year totaling up to $12,060,000 ($24,120,000 for a married couple). New legislation may accelerate the sunset provision ( i.e., roll-back) currently scheduled to cut the exclusion in half in 2026. Estate and Gift Tax Exclusion Amount: Effective January 1, 2022, the 2021 federal estate and gift tax $11,700,000 lifetime exclusion is increased to $12,060,000. Any tax changes enacted in 2022 could have retroactive effect, again making estate planning this year much more complicated.Ī. The legislative outcome is not yet clear, and passage may depend on compromises that result in an affordable and honestly accounted plan that narrows the spending priorities. The following potential developments may affect your present estate plan. The Democrats are considering changes to the Internal Revenue Code to support President Biden’s “Build Back Better” spending plan. Brief Summary of Some Biden Tax Proposals. President Biden has indicated his desire to enact that legislation in 2022, which could include a series of sweeping tax changes as outlined below.ġ. Perhaps the most important recent development was the failure of the Democrats (no Republicans supported this legislation) to enact President Biden’s “Build Back Better” proposal using the “Budget Reconciliation” process that does not require any Republican votes. Our annual estate and tax planning newsletter discusses certain concepts and techniques that should be considered in 2022 by our clients and friends in California.
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