There are 12 states in the union that have state-level estate taxes. In all of these states, there is a certain amount that can be transferred tax free. This is represented by the credit or exclusion, and the remainder would potentially be subject to taxation.
Connecticut is one of these 12 states, but there is a silver lining. Our exclusion is the highest in the country among the states that have state-level estate taxes. It stands at $9.1 million this year, so you have a significant cushion.
Out of State Property
If you live in the Connecticut, but you own property in another state, the estate tax in that state would apply to your estate. Even though there are only 12 states that have state-level estate taxes, there are several of them in our neighborhood.
There is an estate tax in Massachusetts, and it has the lowest exclusion in the country. It is just $1 million, and this is not as much money as it used to be in the past. Let’s say that your grandfather bought a big plot of land in Massachusetts many years ago. It could be worth millions of dollars today.
This is something to keep in mind if you are in possession of property that is located in another state. Vermont also has its own estate tax, and its exclusion is $5 million. Property values in Vermont have risen significantly over the years, so this is another consideration.
Of course, there are Connecticut residents that own property in other parts of the country. These are the 12 states that have state-level estate taxes:
- New York
- Connecticut
- Massachusetts
- Rhode Island
- Minnesota
- Illinois
- Hawaii
- Vermont
- Maryland
- Maine
- Washington
- Oregon
In addition to these states, there is also a separate estate tax in the District of Columbia.
State-Level Inheritance Taxes
You may assume that an estate tax and an inheritance tax are the same, but this is not the case. These are two different types of taxes that can be levied when an estate is being administered.
There is no federal inheritance tax, but there are six states with state-level inheritance taxes: Iowa, New Jersey, Pennsylvania, Kentucky, Maryland, and Nebraska. As you may have noticed, there is an estate tax and an inheritance tax in Maryland. If you own property in one of these states, the inheritance tax would be applicable, and there are no large exclusions.
Federal Estate Tax
In closing, we should take a look at the federal estate tax parameters. This tax carries a $12.06 million exclusion this year but is scheduled to go down to $5.49 million adjusted for inflation in 2026. This could change via legislative mandate, but this is the current trajectory.
There is no taxation on transfers between spouses because there is an unlimited marital deduction. To be able to use it, you must be married to an American citizen. The estate tax exclusion is portable between spouses, so a surviving spouse can use their spouse’s exclusion.
Schedule a Consultation Today!
If taxation is going to impact your estate, we have good news. There are steps you can take to mitigate your exposure, and the ideal approach will depend on the circumstances. And of course, if taxes are not a source of concern, we can help you devise a plan that is ideal for your situation.
You can schedule a consultation at our Westport or Glastonbury, CT estate planning offices if you give us a call at 860-548-1000. There is also a contact form on this site you can fill out to send us a message, and if you reach out this way, we will get back in touch with you ASAP.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
- Exploring the Tax Benefits of Charitable Trusts - September 14, 2023
- The Ripple Effect of Dying Without a Will or Trust - August 29, 2023
- Will an Unwitnessed Handwritten Will Hold Up in Court? - August 10, 2023
