A. Proposed Tax Legislation
As you are likely already aware, 2021 was the year of almost massive tax law changes, especially in the estate planning related areas of the law. However, at the end of the day, the Democrats needed 100% of their Senators to go along with these massive changes, and at least two of them, Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, refused to go along. As a result, no significant tax law changes were enacted in 2021.
Now, it looks like we are back where we started with President Biden’s Revenue Proposals from his Proposed Budget for fiscal year 2023. The proposed tax law changes are again massive in nature, but this time it is even less likely that these proposals will get enacted before the outcome is known from the November 2022 midterm Congressional elections. It should be noted that while most of the proposed changes were, at least in general, in President Biden’s Proposed Budget for fiscal year 2020, which kicked all of this off, one major proposed tax law change was added. Specifically, a new 20% minimum tax is being added on the income and increase in wealth of the ultra-wealthy (those worth over $100 million), which is estimated to affect up to only 20,000 taxpayers.
Yes, many of these proposed changes are significant and scary, but we remain confident that at least Senator Manchin has no intention of voting for these massive changes. As a result, most of us will just hold tight and see what happens in the upcoming midterm Congressional elections. However, for those that are likely to eventually be subject to paying estate taxes and are risk adverse, you should heed the advice we have been giving since 2020, which is to set up Family Gifting Trust(s) and either use them now or be ready to use them if and when needed.
B. Basic Exclusion Amount, GST Tax Exemption, and the Gift Tax Annual Exclusion for 2022
Under current law, the Basic Exclusion Amount (“BEA”) (also known as the Unified Gift & Estate Tax Exclusion Amount) is $10 million, indexed for inflation. The BEA amount indexed for inflation for 2022 has increased from $11,700,000 to $12,060,000 per person. Also under current law, the BEA is scheduled to return to $5 million, indexed for inflation, as of January 1, 2026. At that time, it is estimated to be between $6.5 million and $7 million.
Under current law, the Generation Skipping Transfer (“GST”) tax exemption uses the same figures as the BEA amount, although this has not always been the case. As a result, the GST tax exemption amount has also increased from $11,700,000 to $12,060,000 per person for 2022 and is scheduled to return to $5 million indexed for inflation on January 1, 2026.
The Gift tax annual exclusion permits you to give gifts without having any of these gifts reduce your remaining BEA (and possibly, the GST tax) exemption amounts. The Gift tax annual exclusion amount is $10,000, indexed for inflation and moves up only in increments of $1,000. For 2022, the Gift tax annual exclusion amount has increased from $15,000 to $16,000.
C. Proposed Regulations on the Required Minimum Distribution (“RMD”) Rules After the SECURE Act
As you are also likely already aware, the RMD taxation rules as to IRAs and Qualified Retirement Plans were changed radically by the SECURE Act for non-spouse beneficiaries as of January 1, 2020. Prior to the SECURE Act, a non-spouse beneficiary could generally distribute their share of an inherited IRA over their single life expectancy. After the SECURE Act, this distribution period was generally reduced to 10 years, with exceptions put in place for spouses, minor children, the disabled or chronically ill and for those no more than 10 years younger than the IRA owner. The SECURE Act left open many technical issues based on its wording in this complex area of the law.
On February 23, 2022, the IRS issued Proposed Regulations to flesh out and clarify the RMD related rules after the SECURE Act. At 275 pages, these Proposed Regulations are complex, and we are still studying their full implications. We expect to send out a Newsletter later this year discussing these important Proposed Regulations and their estate planning implications.
If you would like to discuss estate and tax planning in your particular situation, please call us at (678) 720-0750 or e-mail us at info@morgandisalvo.com to schedule a consultation. We can discuss your situation, answer your questions and determine what might be the best fit for you. We look forward to meeting with you.
