While some people anticipated otherwise, 2022 started without any new federal regulation or tax changes addressing estate planning. As proposed legislation passed through the legislative process in 2021, major potential changes to federal estate and gift tax were dropped. These potential changes included a decrease in the estate and gift tax exemption as well as the elimination of a step-up basis.
Furthermore, no reports exist that any changes will be made any time soon. This is not a guarantee, though. Potential changes can emerge at any point in the future. While no changes are looming, it’s worth noting that one substantial change will occur in a few years when in 2025, the federal estate and gift exemption will be reduced to $5,000 per person.
Positive Changes to Estate Planning This Year
Despite the uncertainty, some positive changes exist for taxpayers in 2022. A few of these positive developments include:
- The annual gift tax exclusion has increased. After being adjusted for inflation, tax-free gifts by individuals in 2022 increased to $16,000 per gift recipient and $32,000 for married couples. A person can make an unlimited number of these gifts each year, which is why people who want to make the most of this exemption benefit from making gifts annually.
- The federal estate exemption has increased. Starting in 2022, this estate tax exemption has increased to $12,060,000 per individual as the result of inflation for adjustment. This exemption is poised to lower in the next few years, though. This is why people who are interested in making the most of this exemption should engage in estate planning now before the threshold lowers substantially.
- Required minimum distributions. Changes to life expectancy tables have lowered required annual distributions from qualified retirement accounts as well as IRAs in 2022. Taxpayers will gain from this change because the lowered distribution will lead to less taxable income and help preserve account principles.
- Roth IRA conversions. Potential changes that would limit Roth IRAs conversions have not been passed, which means that loopholes involving Roth IRAs still exist. Utilizing this strategy, high earners who are prohibited from contributing to Roth IRAs and who lack traditional IRAs can use after-tax money and create traditional IRAs then convert to a Roth IRA without facing tax consequences.
How People Interested in Estate Planning Should Proceed Through 2022
Now is a good time to review as well as consult with an estate planning lawyer to determine changes to your situation. High earners who are yet to make lifetime gifts might consider making the most of increased exemptions in case Congress reconsiders this legislation. If you’re interested in passing on assets to a charity, you should consider your options for incorporating charitable giving in your estate.
Obtain the Assistance of an Estate Planning Lawyer
If you or a loved one needs help with estate planning, you should not hesitate to speak with a knowledgeable attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.