For many people, the most important news for 2022 estate planning is an increase in the annual gift tax exclusion. I’ve written previously about annual exclusion gifts, which can be an important tool in reducing estate tax liability. For 2022, the annual gift tax exclusion amount has been increased from $15,000 to $16,000. How can this help reduce estate tax liability?

John and Mary, a fictitious couple living in the Blue Ridge neighborhood in Seattle, have approximately $5 million in assets. With no planning, Washington estate tax would likely be owed at the death of the surviving spouse because his or her assets will exceed Washington’s estate tax exemption amount of $2,193,000. John and Mary have three adult children – Roger, Bo, and Jimmy. John and Mary would like their assets to pass equally to their children upon their death. John and Mary decided to start doing some annual gifting in 2022. So they will each gift their three children $16,000 in 2022. No gift tax will be owed, nor will a gift tax return need to be filed, since the $16,000 limit was not exceeded. Each person can gift $16,000 to as many individuals as they choose, without tax consequences. John can gift $16,000 to Roger, Bo, and Jimmy – and Mary can make similar gifts. At the end of 2022, $96,000 will be passed to Roger, Bo, and Jimmy, tax free. This strategy, in turn, reduces John and Mary’s taxable estate when they die.  If John and Mary diligently stick to this strategy for ten years, they will transfer $960,000 to their children tax free, and their assets will then be approximately $4,000,000. By working with their estate planning attorney to employ additional strategies, such as charitable giving or disclaimer trusts, John and Mary may be able to entirely eliminate any Washington estate tax liability.

In other 2022 estate planning news, the federal estate and gift tax exemption increases from $11.7 million to $12.06 million per individual (or $24.12 million for a married couple). Although this change impacts only high net worth individuals, it does allow for additional funds to be passed on to beneficiaries of those folks without estate tax liabilities.

What estate planning changes do you need to make in 2022? You may want to review your existing estate planning documents. What has changed? Have you moved to a different state? Have your assets significantly increased or decreased? Has anyone that you mentioned in your estate plan died? Do you still feel comfortable with the distributions set forth in your will or revocable living trust? Do you continue to feel confident in your named fiduciaries?

If you think your estate plan may need some tweaking, please let us know. We’d be happy to help.

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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