How Changes in 2022 Laws May Affect Your Estate Planning

 This year, there are some known and proposed changes in our laws that may have an effect on your estate planning initiatives going forward. While these may be important for some individuals and have little impact on others, it’s still good to understand them so you can make the best decisions based on your set of financial circumstances.

2022 Changes in Monthly Retirement Benefits From Social Security

Social Security and SSDI make cost of living adjustments annually. But because inflation has been low for many years, there were few substantial increases over the past two decades. Enter 2022, with the annual inflation rate at the end of November, 2021 coming in at 6.8 percent, the highest it has been since 1982. Consequently, the cost of living increase for Social Security benefits for 2022 is 5.9 percent. This is the most significant cost of living adjustment since 2009, when we saw a 5.8 percent increase.

2022 Changes in Medicare

As of 2022, there is an increase in Medicare Part B premiums to $170.10. If your income is over $91,000 for an individual, or $182,000 for a couple, the Income-Related Monthly Adjust Amount can potentially increase your Medicare premiums up to $578.30 per month, depending on your income. In addition to Part B premium increases, there are additional Medicare changes regarding premiums, deductibles, and copayments.

2022 Changes in SSDI and For Families With Disabilities

Social Security Disability is more fluid than Social Security retirement benefits as SSDI benefits are tied to different variables. According to the Social Security Administration, an average social security disability benefit of $1,282 will be increased to $1,358 beginning this month. In addition to this increase, other disability-related programs have also experienced some changes. The maximum contribution to ABLE Act accounts has increased to $16,000 from $15,000. Under the ABLE Act, those with disabilities can use specifically created accounts for their qualified expenses, including housing, transportation, and education.

Other Social Security Changes for 2022

Other changes to Social Security in 2022 include the following:
  • In order to earn the maximum four credits toward Social Security in 2022, you must earn $6,040 or $1,510 per quarter.
  • The maximum taxable wage base for Social Security is now $147,000.
  • If you turn 62 during the year, your full retirement age is now 67. If you turn 62 in 2022 and currently collect benefits, those will be reduced by 30 percent of the benefit of your full retirement age.
  • If you work until your full retirement age and are currently collecting benefits, your annual earning limitation is now $19,560. At full retirement age, the earning limit goes away.
  • The maximum Windfall Elimination Provision deduction is now $512 for 2022.

Changes in Certain Tax Deductions and Credits

Sometimes, it seems that Congress makes tweaks and changes to the tax code every year! Well, 2022 is no different! There are many small (and some not-so-small) changes to the tax code that you should be aware of for 2022. We won’t cover every single tax change in this blog post (maybe another time) but here we will highlight a few of the changes that might have a particular impact on estate planning. As always, consult your attorney, accountant, banker, and financial advisor before taking any action!

Changes in Earned Income Tax Credit

The Earned Income Tax Credit, available to low to medium wage earners, (typically parents, but non-parents can also qualify), has now increased to $6,935.

2022 Changes in Standard Tax Deductions

While standard deductions have gone up for 2022, from $12,550 to $12,950 for an unmarried individual and from $25,100 to $25,900 for married couples, this will not be available until you file in 2023.

Gift Taxes

While you don’t pay any actual gift taxes until lifetime gifts exceed the current threshold of $12.06 million (which inflation has brought up from $11.7 million last year), you still must file an annual return for any gifts you have given over $16,000 this year, up from $15,000 last year.

Other Changes Affecting Wealthier Individuals

The estate tax exemption will mean the most to high-net-worth individuals, allowing a married couple to pass on up to $24.12 million without paying estate taxes ($12.06M times two, due to the portability election – if you’re wondering what that is, check beck soon for an explainer). While there are nuances that can affect this, most individuals will not have to worry about estate taxes. But since the estate tax exemption is scheduled to drop back down to around $5 million on January 1, 2026, individuals should make use of gifts while they can since the IRS has already confirmed there will be no clawback period if an individual passes after the credit has been reduced. The elimination of the Backdoor Roth 401(k) and other IRA conversion loopholes will survive for now. While the Build Back Better Act would have ended these strategies, these are on hold, along with many other issues still on the table. Even if the legislation is passed, it may possibly be postponed by Congress until 2023, but this is an unknown for now. In addition, our current interest rate landscape makes other specific estate planning strategies particularly attractive, but they may not be available in the future.

What Do These Mean For Your Estate Planning?

While many of the larger potential changes continue to be on hold with the BBB Act in a state of flux, individuals should always keep abreast of potential tax and legislation changes to understand how they may affect their individual financial picture. Estate planning can be complicated, especially for those with significant wealth. Individuals should meet with their estate planning lawyer periodically to look at what is ahead on the horizon and discuss how they may be affected. This is particularly critical during years like 2022 when there are so many potential changes on the table. If you have questions about how this year’s changes will affect your unique financial circumstances, we would be glad to help. Contact the experienced San Antonio estate planning attorneys at the Law Offices of Ryan Reiffert, PLLC to learn more about how we can assist you.