The New Year is a great time to review your estate plan, along with setting other financial goals and resolutions. Estate planning is more than just drafting a will, filing it away, and hoping for the best; it’s a dynamic process that should be reviewed periodically. Generally, estate plans should be reviewed every five years or in conjunction with a major life event to ensure your plan is up to date and consistent with your long-term family goals.

The below are updates for 2022 estate planning and a few tips to keep in mind as you navigate the process:

2022 Estate and Gift Exemption Amounts

Each year, the U.S. Treasury updates for inflation the annual lifetime gift and estate tax exemption amounts along with periodically updating the annual gift tax exclusion amount.

Below are the 2022 amounts:

• Lifetime U.S. gift and estate tax exemption up to $12,060,000 (an increase of $360,000 from 2021 tax year).
• Annual exclusion amount of $16,000 per donee for tax-free gifts ($32,000 for married couples). Up $1,000 from $15,000 in 2021 tax year. 
• Top statutory rate on taxable federal estates remains at 40%.

With many of the aggressive estate tax proposals being removed from President Biden’s Build Back Better Act (BBBA), the golden age of estate planning is still here. Keep in mind that absent future legislation, the lifetime U.S. estate and gift tax exemption will revert to 2017’s lower $5 million amount in 2026.

Basic Estate Planning

For most families a basic estate plan will include a will, possibly trusts (for example, a living trust), powers of attorney (financial and health), and letters of intent. A will discusses what happens to your estate upon passing and who assets go to, along with who you’ll entrust to manage your estate as executor or a trustee of a trust. For assets that pass outside a will, for example retirement accounts, having updated beneficiary designations is also important to review.

Other items such as a central file or location for storing important documents, passwords, asset listings, letters, personal belongings, and family heirlooms, can also help in making administering an estate easier on your heirs and loved ones.

A good rule of thumb is to review your estate plan every five years or so to assess whether your estate planning documents still reflect your goals. Some of the significant life events listed below can also trigger a review of your estate plan. Above all else, communication is key so that family members are aware of the estate plan in place.

If you don’t have a qualified estate planning attorney, or need a new recommendation, please contact your CBIZ advisor for referrals.We are happy to connect you with one.

Review for Life Events

Life happens, and with that estate plans should be updated to ensure they reflect your family values and planned legacy. Below are some common life events that may cause a review in your plan:

• Sale of a business
• Change in state residency
• Birth or adoption of a child and or grandchildren (consider education funding goals)
• Children reaching adulthood
• Divorce or remarriage (including prenuptial planning)
• Death of a spouse or family member
• Large changes in net-worth
• Changes in your health, a spouse’s, or other family members
• Receipt of an inheritance or large gift
• Changes in philanthropic goals, or
• Major changes in federal and state tax laws

Advanced Planning

For families of significant wealth and taxable estates over $12.06 million ($24.12 million married filing jointly) many of the advanced estate planning strategies subject to repeal in the BBBA have lived on.

The goal of these strategies in most cases is to “freeze and squeeze” the lifetime gift and estate tax exemption amount to get more mileage out of the $12.06 million. Estate freezes ensure that future appreciation in assets gifted or inherited is not subject to estate tax while also locking in the high exemption amount. Squeezing estates through discounts on lifetime gifts ensures that taxable gifts beyond the annual exclusion amount are efficient.

For example, in 2021, Spousal Lifetime Access Trusts (SLATs) were a very popular advanced estate planning tool that wealthy families flocked to. With the prospects for additional legislation pushed into 2022, it may be worth brushing up on the use of SLATs with this helpful primer. Read more about SLATs here.

Keeping a cadence with annual exclusion gifts, especially when the exemption has been used up, is another way to continue to carve out value of your estate and minimize future taxes. Annual exclusion gifts can go a long way towards life goals for the next generation including purchasing a first home, education, starting a new business or being able to engage in volunteer work.

State Considerations

More and more, estate planning is becoming a state and local issue with the higher federal exemption amounts. Many families are considering both state and local income taxes, along with state estate taxes, with some considering a change in residence to lower tax states. For example, Washington state has an exemption of $2.193 million with an estate tax rate ranging from 10-20%. Thirteen states currently have an estate tax including Oregon, New York, Maryland, and Illinois, to name a few.

Key Takeaways

The golden age of estate planning continues on in 2022. We are encouraging families to continue making updates and reviewing their estate plans to take advantage of the all-time high estate and gift tax exemption amounts, account for new life events, and most importantly ensuring your estate planning reflects your legacy and values.

If you’d like a review of your current estate plan or need help starting one, please let your CBIZ team know.

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