The IRS has released annual inflation adjustments for 2022.  These include increased gift, estate and generation-skipping transfer tax (“GST”) exemptions and annual gift tax exclusions.  The changes are as follows:

The gift and estate tax exemption and GST exemption increased to $12,060,000 for an individual (from $11,700,000 in 2021).  This means that with proper estate planning, a married couple now has $24,120,000 of available exemption.

The annual gift tax exclusion increased to $16,000 (from $15,000 in 2021).  As a result, individuals are now able to give $16,000 per year ($32,000 for a married couple) to any number of persons (outright or through withdrawal rights in a trust) without using any gift tax exemption.

The annual gift tax exclusion for gifts to non-U.S. citizen spouses increased to $164,000 (from $159,000 in 2021).  (Note that gifts made to a U.S. citizen spouse are not taxable in any amount whether made during the spouse’s lifetime or at death.)

The gift and estate tax exemption and GST exemption are scheduled to reduce to approximately $6,000,000 for an individual (or $12,000,000 for a married couple) as of January 1, 2026, unless Congress changes the law.  

In addition, the Connecticut gift and estate tax exemption increased to $9,100,000 for an individual (from $7,100,000 in 2021).  This means that with proper estate planning, a married couple now has $18,200,000 of available exemption.  For those who have already funded a spousal lifetime access trust (“SLAT”) up to the amount of the prior Connecticut exemption, they can add an additional $2,000,000 to that trust without paying any Connecticut gift tax.  The Connecticut gift and estate tax exemption will match the federal starting next year, so next January the balance of the federal exemption may be added to a SLAT without paying any gift tax.

If the federal (and, therefore, Connecticut as well) exemption goes down in 2026 (or sooner), there will no longer be an opportunity to take advantage of these historically high federal and Connecticut exemptions (i.e., exemption in excess of $6,000,000 per individual).  For more information, please contact Lisa F. Metz (lmetz@brodywilk.com) or another BW attorney.