Reminders - 2022 Adjustments in Transfer Tax Exemptions and Interest Rate

The following 2022 federal tax information may be helpful as you consider your estate planning options for the rest of the year. You should contact your Loeb estate planning attorney for advice before making any taxable gift or intra-family loan.

2022 Transfer Tax Exclusions and Exemptions

• Gift Tax Annual Exclusion – $16,000 (increased from $15,000)
• Gift/Estate Tax Exemption – $12.06 million (increased from $11.7 million)
• Generation-Skipping Transfer (GST) Tax Exemption – $12.06 million (increased from $11.7 million)

Gift Tax Annual Exclusion. The annual exclusion is the most you can give to or for the benefit of an individual within a calendar year without reducing your lifetime gift tax exemption, paying gift tax or filing a federal gift tax return. Married couples can effectively double the annual exclusion amount (to $32,000 per recipient) by electing on a gift tax return to “split” gifts.

Gift/Estate and GST Tax Exemption. Gifts in excess of the annual exclusion reduce the donor’s available lifetime gift tax exemption and must be reported on a federal gift tax return. Gift tax exemption used during life reduces the federal estate tax exemption available at death to offset federal estate taxes. A GST tax also may apply to gifts or bequests to “skip persons” (grandchildren or more remote descendants) or trusts where all current beneficiaries are skip persons). Application of the GST tax exemption can shield these transfers from GST tax.

Unless the tax laws change, the lifetime gift/estate and GST tax exemptions are scheduled to decrease in 2026 to $5 million (estimated at $6.2 million when adjusted for inflation).

7520 Rate and AFRs. Certain estate planning techniques, such as grantor retained annuity trusts (GRATs), charitable lead annuity trusts (CLATs), and intra-family loans and installment sales, are more attractive when certain federally set interest rates are low, specifically the §7520 rate for GRATs and CLATs and the applicable federal rate (AFR) for intra-family loans and installment sales. These rates have risen over the past several months (compare rates for May and June 2022 below).