The pending changes to estate tax and gift taxes are on the table right now. Starting January 1, 2022, your grantor trust and tax-free gift limitations may be changing.

Right now, you have a certain amount of money that you can pass on to a loved one without getting taxed. However, if the tax legislation passes, that amount of money will be cut in half.

What to Know About Potential Changes to Estate Tax in 2022

If you have a sizeable estate that you would like to pass on to your children without being heavily taxed, you may have to make a move before 2022. Here is what you need to know:

  1. Lower Estate Tax Exemption

Currently, the allowed estate and gift threshold is $10,000,000 adjusted for inflation. As of January 1, 2022, that will be cut in half. If you have an estate of $10,000,000 and decide to keep it in your possession past the end of the year, $5,000,000 of your assets will be subject to estate tax.

Even if you don’t think you will pass away by the end of the year, it may be sensible to pass down a large part of your estate before the new tax law takes effect. Meet with an expert legal team to determine what is the best move for you.

  1. Estate Tax Rate Stays the Same

Fortunately, the estate tax rate will stay the same at 40% with this new tax plan. However, even if you have a sizeable estate to pass on to your progenitors, 40% is a large chunk to give to taxes once you’ve reached the $5,000,000 threshold in 2022.

  1. You Have Until 2022 for the Changes to Take Effect

The good news is that you have time to act before the new legislation is implemented. You have until the end of the year to gift up to $10,000,000 that is tax-exempt. Meet with an advisor to determine your best move before 2022 and how much more you would have to pay in taxes if you wait.

  1. Grantor Trust Transactions Will Be Taxed

Grantor trusts are widely used to make transactions between the grantor and the trust without being taxed. Come 2022, all sales transactions made between the grantor and trust will be taxable as if the grantor were dealing with a third party.

It may be time for you to make swift changes to your estate plan. Shoup Legal is here to help. Contact us at (951) 445-4114 or email us at [email protected] to get started.