The accumulation of wealth can give you a lot of freedom, and it is a satisfying feeling to accomplish your goals. Of course, taxation can be a source of concern if you are a high net worth individual. There are heavy taxes to pay during your lifetime, and it does not stop there.
2022 Connecticut Estate Tax Exclusion
There are a total of 12 states in the union that have state-level estate taxes. Half of them are in the Northeast, and we do have a state estate tax here in Connecticut.
The exclusion is an amount you can transfer tax-free, and the rest would be subject to the estate tax. In 2021, it was $7.1 million, and it has been increased $9.1 million this year. There is a graduated rate that tops out at 12 percent, and this will be the flat rate in 2023.
If your estate is taxable, an estate representative must file Form CT-706, and the taxes must be paid six months after your passing.
There is an unlimited marital deduction, so you can leave any amount of property to your spouse free of the estate tax.
There is another dimension to consider when you are evaluating your potential state-level estate tax exposure. If you own property in a state that has an estate tax, that tax will apply to your estate if the property’s value is greater than the exclusion in that state.
Our neighbors in Massachusetts have an estate tax with a $1 million exclusion, so you should discuss out-of-state tax laws with an attorney when you are planning your estate.
Federal Estate and Gift Taxes
In addition to the Connecticut estate tax, you can be exposed to the federal estate tax. The maximum rate is 40 percent, and the 2022 exclusion is $12.06 million. There is also a federal marital estate tax deduction.
You would logically consider giving gifts while you are living to avoid the estate tax, but there is a gift tax as well. It is unified with the estate tax, and the $12.06 million exclusion applies to particularly valuable gifts that you give during your lifetime.
There is an additional $16,000 per person exclusion. You can give this much to an unlimited number of people every year free of taxation without using any of your unified gift and estate tax exclusion.
If you want to pay school tuition for students, you can do so without paying a gift tax. You may also pay medical bills and health insurance premiums for other people without incurring any gift tax exposure.
Believe it or not, there is yet another death tax that can enter the picture for some Americans. As we have explained, and estate tax is levied on the entire taxable portion of an estate. There is just one instance of taxation, but an inheritance tax is different.
This type of tax is imposed on each inheritor when a single estate is being administered. That’s the bad news, but the good news is that close relatives are typically exempt.
There is no federal inheritance tax, but there are six states with inheritance taxes. They are Maryland, New Jersey, Pennsylvania, Iowa, Nebraska, and Kentucky. Maryland has a state-level estate tax and a state inheritance tax.
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Need Help Now?
If you already know that you would like to work with a professional to develop your plan, we are here to help. You can send us a message to request a consultation appointment at our estate planning offices in Westport or Glastonbury, CT, and we can be reached by phone at 860-548-1000.