With the new year comes our new year’s resolutions, hope for health and wellbeing, and the excitement of better things to come. It’s a time for us to reflect on the year in our rearview mirror and lessons learned while eagerly anticipating what lies down the road. In 2021, many of us anticipated changes to tax law which would have drastically changed how, when, and in what amounts we pay federal income, gift, and estate taxes. Fortunately, the expected sharp increases in taxes on gifts and inheritances did not come to fruition in 2021.
These tax law changes seem to have subsided for the moment, but even within existing tax law, changes loom for how taxpayers pass on hard-earned wealth and businesses to future generations. At the end of 2025, taxes are scheduled to increase severely on gifts and inheritances. For the sake of your family and your business, it is important that you remain keenly attuned to these developing changes. Two of the lessons learned in 2021 are:
- Do not wait until the last minute to begin planning; and
- Do not leap blindly into estate or business succession planning, much of which is permanent, solely for tax reasons.
In addition to the lessons learned, new opportunities have arisen. The IRS has updated numerous tax code sections to account for inflation, publishing inflation adjustments to the Internal Revenue Code for the 2022 tax year. Many of these changes impact estate plans, business and wealth planning, and charitable planning. Most notably for your estate planning and business planning:
- The lifetime estate and gift tax exclusion amount has been raised to $12.06 million per person;
- The annual gift tax exclusion is raised from $15,000 to $16,000; and
- The annual gift tax exclusion to a non-US citizen spouse has been raised to $164,000.
The new year and changes in the law also present important reasons to review your existing plans. Changes to the law, your family, your circumstances, and your objectives may change how well your current plans suit your needs. We have developed a helpful tool for taking an inventory of events and circumstances which may change how your plan should be designed and structured. Download Smith Haughey’s 2022 Annual Estate Plan Health Checklist.