R&E Client Alert: Trust & Estate Planning in 2022

On Behalf of | Mar 29, 2022 | Industry Updates

Dear clients,

As we approach the end of the first quarter of 2022, it’s a good time to update and remind you of what has and has not changed in connection with estate and gift taxes in 2022.

Federal Lifetime Exclusion and Portability

None of the proposals to lower the lifetime exclusion amount contained in the various Democratic bills in Congress were enacted. The lifetime exclusion amount was not cut in half and in fact, rose to $12,060,000 per individual ($24,120,000 for a married couple) which may be gifted or bequeathed without incurring any Federal gift or estate tax. The gift/estate tax rate for amounts gifted or bequeathed in excess of the exclusion amount remains at 40%. Portability also remains in effect. This means that if a decedent leaves his or her entire estate to the surviving spouse, the decedent’s unused exclusion amount ($12,060,000 in 2022) is not wasted but is added to the surviving spouse’s exclusion amount so that the surviving spouse may gift or bequeath both the first deceased spouse’s unused exclusion amount and his or her own unused exclusion amount. Note that the current exclusion amounts are automatically cut in half on January 1, 2026 unless reauthorized by Congress. There is also the possibility that Congress could lower the exclusion amount prior to 2026 if the Democrats retain both houses of Congress in this year’s midterm elections. If you are interested in using the maximum lifetime gift tax exclusion, you may want to act sooner rather than later.

New York Lifetime Exclusion and Portability

New York State does not impose a gift tax but it does continue to impose an estate tax. Its basic exclusion amount has increased to $6,110,000 for decedents dying in 2022. However, New York imposes a “cliff” tax so that if a decedent’s estate exceeds 105% of the basic exclusion amount, his or her entire estate (not just the excess) is subject to New York’s estate tax which has a maximum tax rate of 16%. Note that New York State does not allow portability of its unused exclusion amount among spouses so if the first deceased spouse does not make use of it, the surviving spouse will only be able to gift or bequeath his or her individual basic exclusion amount without incurring New York estate tax. There are techniques to enable a spouse to gift or bequeath assets in trust so as to enable a surviving spouse to have the benefit of the income and principal (with limitations) of the basic exclusion amount without having the principal included in the surviving spouse’s taxable estate.

Stepped Up Basis

Another piece of good news is that the stepped up basis of assets on the date of death continues in effect, meaning that if a decedent dies owning an asset, say a building with a basis of $1,000,000 but a fair market value of $10,000,000 on his or her date of death, the basis would be stepped up to $10,000,000 and if the heirs sold the building the next day, there would be no tax due on the sale.

Annual Gift Tax Exemption

Finally, don’t forget to use the annual gift tax exemption amount. In 2022, an individual may gift up to $16,000 ($32,000 by a split gift with a spouse) to an unlimited number of beneficiaries without reducing your lifetime exclusion. For those with children, spouses of children and grandchildren, the amounts that may be gifted can have a significant impact.

Rosenberg & Estis’s trusts and estates professionals would be happy to go into greater detail with you on any of the above and assist you in your estate planning needs.