Tax Implications in Estate Planning After 2022 Reforms

Arizona residents are left navigating a giant maze of tax implications after the 2022 tax reforms.

In order to make informed decisions about how these changes may impact your estate planning, it’s critical to learn as much about the changes as possible.

You will want to speak with your estate planning attorney, a tax advisor, an accountant, and/or your financial planner because the 2022 reforms created new rules and opportunities for your estate planning that may require a change in strategy in Arizona estate tax.

Changes in Exemption Amounts

Every year, people can give gifts (up to a certain amount) using the Annual Exclusion Amount without having to pay a gift tax or using up their lifetime gift tax limit.

In 2022, the Annual Exclusion Amount stood at $16,000 for each individual to whom you gifted. So, if you’re married, you and your spouse could jointly give $32,000 to each individual without worrying about gift taxes. In 2023, the limit for tax-free gifts will go up to $17,000. Also, the maximum amount you can give to a non-citizen spouse without tax consequences will also increase from $164,000 to $175,000.

How do the changes in exemption amounts impact your estate planning? You may want to speak to your accountant and tax advisor to increase your gifting amount and then contact your estate planning attorney to update your estate plan, accordingly. High income earners who haven’t made any lifetime gifts may also want to consider taking advantage of the increased exemptions.

Updates to Rates

Tax reforms have brought about changes in federal estate tax rates and exemptions, so it’s essential for you to reevaluate your estate planning goals and documents. The increase in the federal estate tax exemption means that fewer estates will be subject to federal estate taxes; this will result in fewer people needing tax mitigation strategies like credit shelter trusts.

However, this situation creates a potential conflict between state and federal estate tax policies, as Arizona lacks its own estate tax but adheres to a lower estate tax exemption. Bottom line? You will need to collaborate with your attorney, tax consultant, and accountant to carefully plan how to minimize your state estate tax liabilities, while also taking advantage of the federal exemptions.

You may also want to reevaluate asset transfer methods to your heirs due to the capital gains tax increases at the federal level. There may be different tax implications, making it critical for you to adapt your 2023 estate tax exemption plans to optimize tax efficiency in light of these changes. Lastly, you may also want to review options for incorporating charitable giving in your estate plan so it may also benefit your family. Keep in mind estate planning involves more than just minimizing your taxes, it’s about prudent planning that furthers your personal objectives.

Impact on Trusts

The 2022 tax reforms have introduced a range of changes that individuals with trust structures in Arizona need to consider:

• Increased focus on trust income taxation– This particularly affects irrevocable trusts. There may be potential adjustments in tax planning strategies to minimize your tax liability. Arizona now follows federal income tax rules for the treatment of trusts, which can influence the allocation of income and deductions.
• Utilization of trusts for estate planning purposes– As the federal estate tax exemption has changed, individuals with trusts in Arizona need to review their trust documents and consult with financial and legal experts. These experts will help you ensure your trust structures are aligned with the new tax landscape while also meeting your estate planning objectives.

Contact Us

Now is the time to review and consult with your estate planning attorney to assess any changes in your circumstances based on the 2022 tax reforms.Contact your Estate Planning Attorneys at Brown & Hobkirk, PLLC to get started.