As we kick-off the new year, where do things stand as far as the federal and state estate planning and tax laws? We certainly suffered a bit of whiplash with all the potential changes that were initially proposed as part of the Infrastructure Investment and Jobs Act but ultimately not included in the final legislation that was signed into law on November 15, 2021.
Still on the table is the Build Back Better Act (BBBA). The BBBA was passed by the House of Representatives on November 19, 2021, and will be put before the Senate later this month. If passed, the BBBA will cause some changes to income taxes and business taxes. We will prepare another blog post following Senate review.
As we head into 2022, the only change specific to estate planning and tax laws is a slight increase to certain exemption amounts due to inflation based on existing laws. Here is a breakdown of where things stand as of January 2022:
- Maryland Estate Tax Exemption (the “MD Exemption”) remains steady at $5 million per person ($10 million for a married couple using portability)
- The tax rate on anything over the MD Exemption remains capped at 16%
- Federal Estate and Gift Tax Exemption (the “Federal Exemption”) increases to $12.06 million per person ($24.12 million for a married couple using portability)
- The tax rate on anything over the Federal Exemption remains at 40%
- The Federal Generation Skipping Transfer Tax (the “GST Exemption”) increases to $12.06 million per person with no option for portability for a married couple
- The tax rate on anything over the GST Exemption amount remains at 40%
- The Federal Exemption and GST Exemption are still scheduled to drop back down to $5.49 million per person adjusted for inflation as of January 1, 2026, pursuant to the Tax Cuts and Jobs Act of 2017
- The Federal Annual Exclusion Amount (i.e. the amount you can gift to anyone each year without using any of your Federal Exemption) increases to $16,000 per person
- The tax basis for certain assets (i.e. securities and real property interests) will still qualify for a step-up upon the owner’s date of death
- Making “taxable” gifts to intentionally defective grantor trusts is still available as a tax planning tool to reduce estate taxes
- The use of discounted valuations to transfer membership interests in closely held entities holding nonbusiness assets is still available as a tax planning tool