A new year often brings new changes. Along with New Year’s resolutions that individuals make to become healthier, improve their lifestyle, and be kinder, others may resolve to create or update their estate plan. Because of this, it is important to know the federal and Texas estate planning laws that impact estate plans. Some of these laws have provisions that changed at the beginning of 2022, so even individuals with estate plans in place may want to alter them so they can benefit from these changes. Below are some of the key tax concepts and changes that Texans should pay attention to in crafting their estate plan.
Increases to the Annual Gift and Lifetime Estate Tax Exclusion Amount
In a very notable change, the federal estate tax exemption amount has increased. If an estate is valued over the exemption limit, then the estate will be taxed before assets are distributed to beneficiaries. In 2021, if an estate was worth less than $11.7 million—or $23.4 million for a married couple—then the estate would not be taxed. However, in 2022, the exemption limit has increased to $12.06 million—or $24.12 million for a married couple.
Similarly, the annual gift tax exclusion amount has also increased in 2022. This is the amount a person can give per year to another person without paying any taxes on it. As of January 1, 2022, individuals can now gift $16,000 per year to another without having to pay taxes on it. The previous year, the amount was $15,000.
While these changes may seem minor, they can have a major impact on the advice estate planning attorneys will give to their clients.
No Change to the Federal Tax Rate for Estates
Unlike the annual and lifetime gift and estate tax exclusion amounts, the federal estate tax rate remains the same. In past years, the highest estate and gift tax rate has been 40%. This means the most an estate will be taxed is at 40% of the estate’s total value. This rate has not changed in 2022. Unlike the federal system, Texas does not have an estate tax that individuals must pay; therefore, Texans, need only worry about the federal estate tax.
While the federal estate tax rate remains unchanged, Congress can pass legislation that alters this rate by the end of the year. Because of this—and the constant changes to the estate tax exemption amount—individuals should contact an estate planning attorney before making changes to their plan.
Contact a Houston Estate Planning Attorney
If you or a loved one needs assistance crafting an estate plan, contact the experienced Houston estate planning attorneys at McCulloch & Miller, PLLC. Our knowledgeable attorneys keep up to date on all relevant changes to federal and state estate planning law—this means if your estate plan has been affected by these alterations, they will be able to provide you with advice on how to make the necessary changes to bring it back in line with your wishes. Call us today to schedule a consultation and to speak with one of our attorneys at 713-333-8900.