Financial success is the name of the game for many people, and it provides significant freedom and long-term peace of mind. At the same time, estate taxes can enter the picture when you have accumulated a good bit of wealth.
With this in mind, we will look at estate planning for high-net-worth Connecticut residents in this post.
Federal State Tax Exclusion
The federal estate tax carries a 40 percent maximum rate, so it can significantly erode your legacy. That’s the bad news, but the good news is the fact that there is a robust credit or exclusion.
Only the portion of an estate that exceeds the exclusion will be subject to taxation. In 2017, the exclusion was $5.49 million. A $5 million exclusion was established in 2011 via legislative mandate, and it was retained with annual inflation adjustments.
At the end of 2017, the Tax Cuts and Jobs Act was enacted. It doubled the exclusion indexed for inflation for 2018. It was $11.18 million that year, and this year, it is $13.61 million after a series of increases to account for inflation.
Marital Considerations
There are a couple of things you should understand about the estate tax parameters if you are married. First, the estate tax exclusion is portable. This means that a surviving spouse can use the exclusion that was allotted to their deceased spouse.
Secondly, there is an unlimited marital deduction. You can transfer any amount of property to your spouse without incurring any transfer tax liability – with one caveat. The unlimited marital deduction is only available to American citizens.
Federal Gift Tax
The estate tax would be of little consequence if you could give away your assets while you are living to avoid it. To prevent this, there is a federal gift tax in place, and the estate tax and the gift tax are unified.
As a result, the multimillion-dollar exclusion is a unified exclusion. You can give up to $18,000 to an unlimited number of people tax-free each year. If you give gifts that exceed this amount, you would be using a portion of your unified exclusion to give the gifts tax-free.
Connecticut State Estate and Gift Taxes
There are a dozen states with state-level estate taxes, and Connecticut is one of them. The exclusions in most of the states are lower than the federal exclusion. Unfortunately, Connecticut is an exception. Our exclusion is equal to the federal estate tax exclusion.
We are unique in one other respect: Connecticut is the only state with a state-level gift tax.
Pending Exclusion Reduction
The provision in the Tax Cuts and Jobs Act that established the record-high exclusion is going to expire at the end of 2025. In 2026, the exclusion will revert back to the 2017 level of $5.49 million indexed for inflation.
As a result, you have a limited window of opportunity. You could use the expanded exclusion to fund certain types of tax efficiency trusts while you still can. We can learn about your situation and provide recommendations based on your specific situation.
Let’s Get Started!
Our firm can certainly help if taxation is a source of concern for you. At the same time, professional estate planning assistance is invaluable for anyone.
When you work with us, we will learn about your objectives, your family dynamic, and your legacy goals. Recommendations will be made based on the situation, and you will ultimately go forward with a rock-solid plan that covers all of your bases effectively.
You can schedule a consultation at our Westport or Glastonbury, CT estate planning offices by calling us at 860-548-1000, and there is a contact form on this site you can use to send us a message.
