Gift, Estate and Generation-Skipping Transfer Tax Changes for 2022

After remaining the same for four years, the annual gift tax exclusion has increased from $15,000 to $16,000 for gifts made on or after January 1, 2022. The exclusion is the most you can give away for the benefit of a single person within a calendar year without the need to file a federal gift tax return or reduce your lifetime exemption. If you are married, you can elect to “split” these gifts with your spouse, which essentially doubles the annual exclusion. As an example, if you are married, you may give up to $32,000 this year to an unlimited number of individuals. In general, these gifts do not include certain gifts for educational and medical expenses, even if they are in excess of the annual exclusion, and paid directly to the educational institution or medical provider, and not paid to the recipient of the education or medical treatment.

The lifetime exclusion for paying gift and estate tax was also increased for 2022. The lifetime amount increased from $11.7 million to $12.06 million. The lifetime exclusion is the maximum amount you may give away to individuals during your lifetime. Generally you will owe taxes of 40% on any amounts given that exceed the $12.06 million exclusion during your lifetime. (Note: barring any changes to the law, the exclusion is set to sunset at the end of 2025, and will change the lifetime exclusion to $6.2 million).

The gift tax is tied to the estate tax. The exclusion above also applies to the estate. After you die, if the value of your total assets less allowable liabilities exceed the remaining lifetime exemption, your estate will owe estate taxes. The remaining lifetime exemption is calculated as the applicable lifetime exclusion amount (currently $12.06 million) less the amount of gifts in excess of the annual exclusion you made during your lifetime.

The generation-skipping transfer tax (GST) is also increasing for 2022. The lifetime exemption for GST is increasing from $11.7 million to $12.06 million for gifts made in 2022. GST tax is very complex, but in general is a tax on the “skip” generation, i.e. grandparent to grandchild. It is a tax on lifetime gifts and post-death transfers (those made by will or certain trusts) for the benefit of individuals more than one generation removed from you. This calculation is separate from the annual and lifetime gift tax exclusion, and is taxable at a rate of 40% on taxable gifts. There is no annual exclusion for the GST Tax.

Contact your Stanfield + O’Dell tax professional with any questions or regarding planning opportunities for gifting of assets.