The 2022 Estate Exemption Rises to $12.06 Million: A Gifting Window Framed by the 2026 Sunset

Key takeaways

• For 2022, the basic exclusion amount for estate, gift, and GST tax is $12,060,000, up from $11,700,000 in 2021 — an increase of $360,000 (Rev. Proc. 2021-45).
• The annual gift tax exclusion rises to $16,000 per donee for 2022, the first increase since 2018.
• Under current law, the doubled exclusion sunsets after December 31, 2025, reverting on January 1, 2026 to the pre-2018 level of $5 million indexed for inflation — an estimated $6 to $7 million.
• Final IRS regulations confirm there is no clawback: gifts made while the higher exclusion is in effect are not retroactively taxed if the donor dies after the exclusion drops.

The 2022 numbers

On November 10, the IRS released Rev. Proc. 2021-45, the 2022 inflation adjustments. For estate planning, two figures stand out.

The basic exclusion amount — the unified amount a person can transfer free of federal estate and gift tax — rises to $12,060,000 for 2022, up from $11,700,000 in 2021. The generation-skipping transfer tax exemption tracks it exactly, also $12,060,000, because the GST exemption is tied by statute to the basic exclusion. A married couple, using both spouses' exclusions, can shelter up to $24,120,000 in 2022.

The annual gift tax exclusion increases to $16,000 per donee for 2022 — the amount a person can give to any number of recipients each year without using any lifetime exclusion or filing a gift tax return for those gifts. This is the first time the annual exclusion has moved since 2018, when it last rose to $15,000. (The separate annual exclusion for gifts to a non-citizen spouse rises to $164,000.)

These are meaningful increases, and the inflation environment suggests the figures will keep climbing in the near term. But the year-over-year number is not the story. The story is what happens to the exclusion at the end of 2025.

The sunset is the planning driver

The doubled exclusion is not permanent. The 2017 tax law (§ 11061) increased the basic exclusion from $5 million to $10 million, inflation-indexed — which is how indexing has carried it to $12.06 million for 2022 — but only for decedents dying and gifts made after December 31, 2017 and before January 1, 2026. On January 1, 2026, under current law, the exclusion reverts to the pre-2018 level of $5 million indexed for inflation, estimated at roughly $6 to $7 million in 2026 dollars.

That scheduled reduction reframes the entire analysis. Today, the exclusion is at or near its high-water mark and rising. In a little over four years, under the law as written, it is set to fall by roughly half. For a family whose wealth exceeds the post-2025 exclusion, the difference between making a large gift before the sunset and after it can be the difference between transferring several million dollars free of transfer tax and not.

The point is not to predict what Congress will do — it is to plan against the law that exists. As of now, the sunset is enacted law and the higher exclusion is a using-or-losing proposition for families above the future threshold. Planning that depends on the exclusion staying high is planning on a change that has not happened.

There is no clawback — which is what makes the window usable

A reasonable worry about using the higher exclusion now is whether it can be taken away later: if you make a $12 million gift in 2022 and die in 2027 when the exclusion is $7 million, does the IRS "claw back" the difference and tax the gift retroactively?

It does not. The IRS addressed this directly in final regulations under § 2010(c) (T.D. 9884, published in the Federal Register on November 26, 2019). The regulations adopt a special rule: in computing estate tax at death, the estate uses the *greater of* the exclusion in effect at death or the exclusion that was actually applied to the decedent's lifetime gifts. The effect is that a taxpayer who used the elevated exclusion for lifetime gifts keeps the benefit of having used it, even if the exclusion has since dropped.

This is the legal foundation for "use it or lose it." Because there is no clawback, a large gift made while the exclusion is high locks in the higher amount — the gift is not revisited when the exclusion falls. Without that rule, pre-sunset gifting would carry the risk of retroactive tax; with it, the window is genuinely usable. The catch is structural: the benefit accrues only to exclusion actually used. A modest gift does not capture the elevated amount, because the special rule compares the exclusion used against the exclusion at death — so a family that wants to lock in the high exclusion generally has to make gifts large enough to draw on it meaningfully.

A note on the legislative backdrop

Estate planning this fall was shaped, for a time, by proposals that would have accelerated the sunset. Earlier in the year, a House Ways and Means draft proposed to cut the exclusion roughly in half effective January 1, 2022 — pulling the reduction forward by four years — along with other transfer-tax changes. That prospect drove a wave of urgency.

The version of the bill that passed the House on November 19 did not include those estate and gift provisions; the exclusion acceleration and the related changes had been removed. So as the year closes, the near-term threat of an early, legislated reduction has receded from the pending bill. What has not changed is the statutory 2026 sunset already on the books. The accurate posture is therefore calmer but unchanged in substance: the exclusion is high now, it is scheduled to fall in 2026 under current law, and the planning case rests on that enacted sunset rather than on any pending proposal. (The narrower question of grantor trust techniques, which featured prominently in the earlier proposals, we treat separately.)

What to do now

For families whose wealth exceeds the post-2025 exclusion and who have the intent to transfer assets to the next generation, the next several years are a defined planning window, and the work should be deliberate rather than rushed. Quantify the gap between current wealth and the projected post-sunset exclusion to see how much exclusion is genuinely at risk of being lost. Recognize that capturing the high exclusion requires using it — that meaningful gifts, not token ones, are what the no-clawback rule rewards. Allow time for the work that large gifts require: valuations, entity and trust structuring, and the documentation that makes a transfer defensible. And revisit the plan as the figures rise and the calendar advances. The window is real and protected, but it is finite, and the structures that use it well take time to build correctly.

FAQ

What is the 2022 estate and gift tax exclusion? $12,060,000 per person for 2022, up from $11,700,000 in 2021. The GST exemption matches it. The annual gift exclusion rises to $16,000 per donee.

When does the higher exclusion go away? Under current law, the doubled exclusion sunsets after December 31, 2025. On January 1, 2026 it reverts to the pre-2018 level of $5 million indexed for inflation — estimated at roughly $6 to $7 million.

If I make a large gift now and the exclusion drops, will I be taxed retroactively? No. Final IRS regulations confirm there is no clawback. The estate-tax computation at death uses the greater of the exclusion at death or the exclusion applied to lifetime gifts, so a large gift made while the exclusion is high locks in that benefit.

Does a small gift capture the higher exclusion? Generally not. The no-clawback rule rewards exclusion actually used. To lock in the elevated amount, gifts usually have to be large enough to draw on it meaningfully, not token transfers covered by the annual exclusion.