At last, the IRS has announced changes to the unified credit and annual gift tax exemption for 2022.
To understand what these changes mean for Houston residents, it is important to first understand how these tax exclusions operate. The lifetime estate and gift tax exemption—also known as the unified tax credit—allows people to make tax-free transfers up to a certain amount during their life and upon their death. The exclusion is said to be “unified” because certain gifts transferred during a person’s life will count against the total amount of transfers that can be made tax-free upon their death.
Outside the unified credit, however, is the annual gift tax exemption. This exemption gives people a free pass to make untaxed gifts up to a certain amount each year without counting it toward the unified credit limit.
The unified credit and annual gift tax exclusions are therefore important estate-planning tools. Whenever there is a change to either of them, it is useful to review your estate plan to see how it may be affected and whether any adjustments should be made.
2022 Annual Gift Tax Exclusion
For four long years, the annual gift tax exclusion has remained stagnant at $15,000 per recipient. For 2022, however, the exclusion will be raised to $16,000 to account for inflation.
What this means for Texas estate holders in the more mature generations is that they can transfer considerably more of their wealth to family members without incurring any taxes.
Take, for example, a married couple with three children and eight grandchildren. Together, that couple could transfer $352,000 in 2022 to those descendants tax-free. Critically, because the annual gift tax exclusion is separate from the unified credit, these transfers would not reduce the total amount of estate and gift transfers that could be made tax-free.
Using the annual gift tax exclusion liberally allows families to remove significant assets from their taxable estates, all while avoiding gift and estate taxes on the future appreciation of those assets.
2022 Lifetime Estate and Gift Tax Exemption
In 2022, the unified credit will increase to $12,060,000. While the increase itself is notable, what may be more important is the fact that the credit is currently expected to be cut in half for 2026.
Families with considerable wealth may wish to take advantage of this generous unified credit while it still exists. The way to do this is to make additional lifetime gifts instead of planning transfers through inheritances.
An estate-planning law firm can help you understand the changes to these important tax shields and whether they have any bearing on your unique estate plan.
Consult a Houston Estate Planning Lawyer Today
If you are a Texas resident with an estate to protect, then do not hesitate to contact the Houston estate planning law firm of McCulloch & Miller, PLLC. For over 30 years, McCulloch & Miller has assisted families in crafting plans to protect their hard-earned assets. Keeping a close watch on developments in Washington, D.C., we expertly advise clients on the impact of annual changes to federal tax exemptions on their unique estate plan. Call 713-333-8900 to schedule a free, no strings attached consultation with one of our attorneys.