2022 Tax Update for Estate Planners and Family Businesses

Planning & Strategy Taxes

Where Are We With Tax Policy?

Entering 2021, tax worries and changes in tax policy were at the forefront of discussion in the political, business, and estate arenas. Changes including removing the step-up in basis on capital gains at death, increasing the corporate tax rate, eliminating valuation discounts, neutering GRATS, increasing the capital gains rate on high incomes, and lowering the gift and estate tax exemption were all on the table as part of the Biden Administration’s agenda upon taking office.

As 2022 kicks off, tax policy largely remains unchanged from a year ago. President Biden’s Build Back Better (“BBB”) Act went through numerous iterations over the year and was politicked down from a headline program cost of $3.5 trillion to $1.7 trillion before ultimately being kiboshed by Senator Joe Manchin (D-WV) publicly pulling his “Yea” from the bill in late December.

But where does that leave estate planners and family businesses? There are three things estate planners and business advisors need to keep top of mind regarding tax policy in 2022.

1. Major Tax Overhaul Less Likely…

A short column from Bloomberg Tax highlighted the President’s herculean task of resurrecting BBB heading into a contentious 2022 midterm election cycle, with multiple purple state Democrat Senators not named Joe or Kyrsten facing tougher reelection battles. The likelihood of major tax changes diminishes as the calendar approaches November 2022, and the polling would suggest Democrats may be less willing to pass sweeping changes in the face of a ‘red wave’ in the midterm elections. Watch closely: if nothing transpires early in the legislative calendar, the likelihood of major tax changes will likely dissipate until at least January 2025.

According to a report from The Hill, Democratic aides say the BBB bill won’t be ready for floor action any time soon and predict the wide-ranging legislation may have to be completely overhauled. Senate Majority Leader Chuck Schumer (D-NY) informed colleagues the Senate will begin focusing on voting rights legislation in the New Year, further signaling a shift from tax policy. After a year of tax consternation, it might be nice to ring in the new year with less tax anxiety immediately on the horizon.

2. Changes Still Lurking

Speaking during a radio interview, Senator Manchin offered a path to revive a skinnier version of President Biden’s BBB bill. Senator Manchin said the legislation should go through Senate committees in order to examine any economic impacts and focus on rolling back the 2017 Tax Cuts and Job Act (“TCJA”) tax cuts.

What parts of TCJA is Senator Manchin referring to? Hard to say, but the largest changes in the TCJA included a decrease in individual income tax rates, a decrease in the federal corporate income tax rate from 35% to 21%, and the qualified business income deduction to pass-through entities. The law also increased the estate tax exemption for single and married couples (discussed below) to their current schedule.

Senator Manchin has also indicated he is willing to support some version of a tax targeting billionaire wealth via a wealth tax mechanism, a cause generally supported by the more progressive wing of the Democrat party. While this may not affect as many readers here, it does reflect the Senator’s willingness to entertain more aggressive tax increases (while maintaining his issue with the spending programs outlined in BBB). While less vocal moderate Democrats are likely concerned with voting on any tax increase in 2022, this may be the President’s only shot to pass broader tax policy changes if a ‘red wave’ does transpire in 2022.

3. Remember the Transfer Tax Law Sunset

For family businesses and estate planners, while the transfer exemptions remain at current levels, they are still set to drop by 50% on January 1, 2026 (as well as current income tax rates). Per The National Law Review, the Treasury Department has confirmed the additional transfer tax exemption under current law is a use it or lose it benefit. If a taxpayer uses the “extra” exemption before it expires (by making lifetime gifts), it will not be “clawed back” to cause additional tax if the taxpayer dies after the exemption is reduced.

As we’ve written previously the current estate and gift tax exclusion is an opportunity for privately held and family businesses to accelerate their gifting strategies. In 2022 the gift and estate tax exemption increased to $12.06 million ($24.12 million for a married couple), allowing families and estate planners to maximize lifetime gifts in a tax advantageous environment. As an added bonus, federal tax laws allow for an annual exclusion that avoids the estate/gift tax exemption entirely. This level was set at $15,000 per recipient for 2021 and will increase for inflation to $16,000 in 2022.


As we have written previously in Family Business Director, don’t let the tax tail wag the business dog. Estate tax planning efforts should be opportunistic while remaining focused on the bigger goal, which is ensuring a successful transition of the ownership of the family business from one generation to the next in a way that promotes the long-term sustainability of the family and the business.

Keeping a semi-regular eye on Washington D.C. can be beneficial to estate attorneys and family businesses looking to avoid legislative pitfalls that can torpedo an estate plan. Just remember that predicting the future is perilous: the BBB act may be mortally wounded, but like any good political drama, you have to remember the evil twin brother who has been lurking out of frame. Contact a professional at Mercer Capital with your valuation needs in support of your estate planning.

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