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Estate Planning Changes You Should Know About for 2022

Under the new budget reconciliation bill introduced in September, there are many proposed changes to the current estate and gift tax rules that could potentially affect individuals considering their estate planning strategies. While these are only proposed and have not yet gone into effect, individuals should be watchful and consider how these proposals may affect their personal circumstances.

For now, there is still a great degree of uncertainty over what the final outcome will be. A professional estate planning attorney can help you understand how these changes may affect you and what your options are before any go into effect.

Proposed Increase of Tax Rates for Individuals

Under the new proposal, the top marginal income tax rate would increase, with an additional surtax imposed on those with income over $5 million. Capital gains tax rates would also be increased.

Increased Tax Rates for Trusts and Estates

In addition to raising certain individuals’ top marginal income tax rate, the proposed bill would also raise tax rates on trusts and estates with taxable income of over $12,500. Those with income over $100,000 would see an additional 3% increase.

Reduction of the Estate and Gift Tax Exemption

Right now, the federal estate and gift tax exemption is $11.7 million per person under the Tax Cuts and Jobs Act of 2017. The proposed bill would reduce this to $5 million per person. The GST, or generation-skipping transfer tax, would also be decreased from $11.7 million per person to $5 million per person.

Valuation Discounts Would Be Restricted

Under the new proposed bill, discounts would be eliminated for the transfer of any nonbusiness assets. This would apply to the valuation of those interests that are owned at the time of death as well as those that are gifted.

Grantor Trust Advantages Would Be Eliminated

Under the proposed bill, any assets held in a grantor trust would be included in the decedent’s taxable estate, consequently eliminating its gift tax advantage. Under the current law, the grantor retains powers over the trust so that he or she is liable for the trust's income tax. This allows them to make tax-free gifts to beneficiaries. The new bill would eliminate this by imposing gift taxes on these assets.

In addition, any advantages now enjoyed in the transfer of a property between the trust and the grantor in a sale or exchange would be eliminated, except in the case of revocable living trusts.

Restrictions on Exclusion Rates for Section 1202 Stock

The new bill would no longer allow 75% and 100% exclusion rates on gains from qualified small business stocks to those individuals with an adjusted gross income of $400,000 or over. 50% exclusion rates would still be available.

What Does All This Mean For You?

So what does this mean for individuals who are considering estate planning? While many of these changes will never be implemented, some will. Your planning should retain a good amount of flexibility with modification options, considering any changes may change again after the 2022 or 2024 elections.

Being proactive and watchful is the name of the game right now. Taking advantage of current estate planning devices before changes go into effect is another important consideration.

If you have questions about how the new budget proposal may affect your unique circumstances into 2022, we can help. At the Law Offices of Roshni T. Desai, we take pride in taking a tailored approach to each client’s estate planning needs. Call us at (714) 694-1200 or contact us online to schedule a free consultation.