2022 Federal Estate Tax Update by Kenneth Vercammen Edison NJ 08817

2022 Federal Estate Tax Update Lifetime Exclusion Increases to $12,060,000: As of January 1, 2022, the federal gift and estate tax exclusion amount, as well as the exemption from generation-skipping transfer (GST) tax, (collectively, the “transfer tax exclusion amounts”) have increased by $360,000 from $11,700,000 to $12,060,000 ($24,120,000 for a married couple). Annual Exclusion Increases to $16,000 As of January 1, 2022, the federal gift tax annual exclusion amount (i.e., the amount that an individual can annually transfer to another individual without using any lifetime gift tax exclusion or paying any gift tax) increased by $1,000 from $15,000 to $16,000 ($32,000 for a married couple). However, no gifts can be made to avoid Medicaid or nursing home. Required Minimum Distributions: New life expectancy tables used for determining required minimum distributions (RMDs) from IRAs and qualified retirement plans went into effect as of January 1, 2022. These changes impact traditional (non-Roth) IRA owners who have reached their Required Beginning Date for taking RMDs, qualified retirement plan participants who have reached their Required Beginning Date for taking RMDs, and beneficiaries of an inherited IRA or qualified retirement plan. Please contact your plan administrator or financial advisor regarding how to compute your RMDs for calendar year 2022 using the new tables. Step-Up in Basis: Under current federal tax laws, the income tax basis of property acquired from a decedent generally is adjusted to the fair market value of that property as of the date of the decedent’s death (often referred to as a “step-up” in basis at death). Although there were proposals in Congress to change this, Congress did not pass those proposals in 2021, so the step-up in basis at death remains in effect for 2022. More info https://www.jdsupra.com/legalnews/est... Form 706 Changes The basic exclusion amount (or applicable exclusion amount in years prior to 2011) is $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), $5,430,000 (2015), $5,450,000 (2016), $5,490,000 (2017), $11,180,000 (2018), $11,400,000 (2019), $11,580,000 (2020), $11,700,000 (2021), and $12,060,000 (2022). Exclusions The annual exclusion for gifts is $11,000 (2004-2005), $12,000 (2006-2008), $13,000 (2009-2012) and $14,000 (2013-2017). In 2018, 2019, 2020, and 2021, the annual exclusion is $15,000. In 2022, the annual exclusion is $16,000. The basic exclusion amount (or applicable exclusion amount in years prior to 2011) for gifts is $1,000,000 (2010), $5,000,000 (2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), $5,430,000 (2015), $5,450,000 (2016), $5,490,000 (2017), $11,180,000 (2018), $11,400,000 (2019), $11,580,000 (2020), $11,700,000 (2021), and $12,060,000 (2022). Form 706 Changes The basic exclusion amount (or applicable exclusion amount in years prior to 2011) is $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), $5,430,000 (2015), $5,450,000 (2016), $5,490,000 (2017), $11,180,000 (2018), $11,400,000 (2019), $11,580,000 (2020), $11,700,000 (2021), and $12,060,000 (2022). For Estate Tax returns after 12/31/1976, Line 4 of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return PDF, lists the cumulative amount of adjusted taxable gifts within the meaning of IRC section 2503. The computation of gift tax payable (Line 7 of Form 706) uses the IRC section 2001(c) rate schedule in effect as of the date of the decedent's death, rather than the actual amount of gift taxes paid with respect to the gifts. With the top bracket tax rates decreasing from 55 percent (in 2001) to 35 percent (in 2010), and then increasing to 40 percent (in 2013), the IRS has encountered situations where gift taxes paid were greater than the tax calculated using the rate in effect at the date of death. Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent's unused exclusion to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election. See the Instructions to Form 706 for additional information.