Estate Planning | Making a Difference One Family at a Time

FEDERAL

Estate and Gift Tax Applicable Exclusion:

The Estate and Gift Tax Exemption amount refers to the total amount of one’s assets that can be passed at the time of death without incurring a federal estate tax as part of estate planning. However, the exemption can also be used during one’s lifetime in the form of taxable gifts (transfers exceeding the applicable gift tax exemption – see below), and the available exemption at death may be less depending on the extent one utilizes the exemption during life.

The Estate and Gift Tax Applicable Exemption is currently $15 million per individual. In the case of a married couple, a surviving spouse can elect to save their deceased spouse’s unused Federal exemption by filing a Federal Estate Tax Return and making a “portability” election. Doing so can effectively secure a greater exemption from Federal Estate and Gift Taxes for a surviving spouse.

Annual Gift Tax Exclusion:

The Annual Gift Tax Exemption refers to the amount that a donor can give to any one individual each year without using any estate and gift tax exemption and trust administration. Depending on the number of people a donor wishes to make gifts to, the donor may be able to transfer a significant amount of assets without using up his or her estate and gift tax exemption. However, there are other tax considerations to make before making gifts, particularly when it comes to capital assets, and it is recommended that individuals consult with an attorney or tax advisor prior to making gifts.

The Annual Gift Tax Exemption is currently $19,000. Married couples can effectively double this amount, provided both spouses consent to the gift and file a return to elect to “split” gifts. Gifts in excess of the applicable exclusion must be reported to the IRS on a Gift Tax Return and such returns should be maintained in perpetuity as they become relevant again upon death for Estate Tax purposes. Find your gift tax-related questions

Generation-Skipping Tax Exemption:

The Generation-Skipping Tax Exemption refers to gifts or bequests made to people who are grandchildren or other “skip persons” (i.e. more than a generation removed from the donor). It may also be used in sophisticated estate plans as a way of avoiding intergenerational Federal estate tax at the death of a donor’s child. Each person currently has $15 million of Generation-Skipping Tax Exemption.

Connecticut

Connecticut Estate and Gift Tax:

Connecticut remains among the few States that assess a separate Estate Tax at the time of one’s death. Currently, for individuals dying in 2020, Connecticut provides for an exemption from State estate taxes in the amount of $5.1 million. Connecticut’s tax is similar in many ways to that of the Federal Estate Tax in that gifts made during one’s lifetime may use up one’s exemption to the extent the gift exceeds the applicable annual gift tax exemption. However, unlike Federal estate taxes, a surviving spouse cannot reserve their spouse’s unused exemption amount for future use (see “portability” referenced above).

Connecticut has the unique distinction of being the only State that also assesses a State gift tax separate from the Federal Gift Tax. However, Connecticut applies the same gift tax exemption of $15,000 and the State filing requirements are similar to that of the Federal requirements. As a general rule, this means that if you must file a Federal gift tax return, and are subject to Connecticut taxation, you must also file a Connecticut gift tax return.

Connecticut’s, and other state’s estate taxes, may also apply to individuals who do not necessarily expect to be subject to our state’s tax structure. For instance, residents of other states holding real property located in Connecticut will likely have to file a Connecticut Estate Tax Return upon their deaths to address the statutory liens that attach to real property upon one’s death. This can be an unexpected tax feature of Connecticut and should be discussed with a local attorney who can explain the administrative process in Connecticut for estate tax purposes.