The federal estate and gift tax exemption is set to climb to $12.06 million per individual for deaths occurring in 2022, up from $11.7 million in 2021, according to new Internal Revenue Service inflation-adjusted numbers. The gift tax annual exclusion amount will also rise starting 2022 to $16,000,up from $15,000
The IRS announced the new inflation-adjusted numbers in Rev. Proc. 2021-45, 2018–52 IRB 979.
“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. For 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.
In 2022, an individual can leave $12.06 million to heirs and pay zero federal estate or gift tax, and a married couple can leave $24.12 million ($12.06 x 2). 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.
Separately, you can give away $16,000 to each individual—kids, grandkids, their spouses—as you’d like without any federal gift tax consequences. Spouses can make $16,000 gifts as well, doubling the impact. A series of these gifts can add up, and they don’t count toward your estate exemption. “We always encourage our clients to make annual exclusion gifts because it doesn’t count toward their estate,” says Kruse. “It’s a way to leverage your dollars. It lowers the amount that is subject to tax when you die or if you gave it to a foundation or a charity.”
For wealthy clients making big gifts, Crain recommends that they set up special trusts and loans to family members. “Many of our clients have started and completed these gifts. If you’re thinking about it, get busy now,” she says. In any case, she insists that updating an estate’s basic documents is advisable: 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 scheduled to be reduced 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.