If you’ve followed along this year, it has been quite the saga of events in Washington, D.C. regarding the future of the estate and gift tax. Despite all the proposals that floated through both chambers of Congress and President Biden’s proposals, the estate tax is ending the year right where we started – with just the changes to account for inflation.
What is Estate Tax?
Maybe you’re wondering what we mean by the term “estate tax.” The estate tax, also known as the “death tax,” is a tax imposed on an individual’s assets after the individual dies. Here in Michigan, we do not have a state-imposed estate tax and residents only need to be worried about the federal estate tax.
Starting January 1, 2022, the annual estate tax exemption amount will be $12.06 million per individual and $24.12 million for a married couple (Rev. Proc. 2021-45). The annual gift tax exclusion amount also increased after almost four years. You can now give assets or money to someone without reporting it to the Internal Revenue Service, as long as the amount is under $16,000 per person, per year.
During the fall of 2021, a couple of proposals were floating in Congress that would have lowered the estate tax exemption so that the federal government could apply the estate tax to more individuals with less wealth. These proposals are still pending and are not currently included in the Build Back Better Plan, the most recent government spending package that just passed the House. While the Build Back Better Plan goes through the Senate process for passage, we will have to wait and see if there are any added provisions pertaining to the estate tax exemption. If there are, the bill will go back to the House for another vote, and we will be back where we started.
The moral of the story: don’t wait to make any changes to your estate plan, especially in high net worth planning. The estate tax exemption is set to lower drastically beginning in 2026 and will revert to $5 million per person (as in 2010), indexed for inflation. There is not much time left to start the planning process to move assets out of your estate. There are many options to consider in order to reduce your estate tax exposure while you are alive. The Rhoades McKee Estate Planning Team is here to help you decide the best plan of action for you and your family.More Publications