A lot of people that are fully aware of the importance of estate planning are unprepared because they don’t have a starting point. With this in mind, we will share some questions here. When you think about the answers, your estate plan will start to take shape.
Are family members relying on your income?
Even if you are single and you have no children, you should have a basic estate plan in place, but you would be taking a minimal risk if you do not. On the other hand, if you are married and your spouse is depending on your income, estate planning is much more important.
When there are children involved, estate planning is an absolute necessity. There are two main considerations when you are planning your estate as a parent of dependent children. One of them is the financial part of the equation.
Obviously, children cannot handle their own funds, so you have to empower an adult to manage assets on behalf of your dependents. If you establish a revocable living trust, you would act as the trustee while you are alive, and you and your spouse could be co-trustees if you are married.
You would name a successor trustee to assume the role if you and your spouse pass away, so a potential money manager would be in place. The other piece to the puzzle is the designation of a guardian, and you can do this in a simple will.
A living trust is a more comprehensive long-term solution, but you could alternately use a testamentary trust, which is a trust that is contained within a will.
How are you going to fund the trust? Life insurance is the ideal income replacement vehicle, and the trust can be the beneficiary of life insurance.
Will estate taxes be a source of concern?
An inheritor does not have to report an inheritance on their state or federal income tax returns, but there are estate taxes that can have a significant impact. Most states do not have state-level estate taxes, but Connecticut is one of the 12 states with this type of tax.
There is an $11.7 million federal estate tax exclusion in 2021. You can transfer this amount tax-free, and any portion of your estate that exceeds this amount would potentially be taxable.
This figure could go down to just over $6 million next year if the reconciliation bill that is in Congress is passed and the provision that would reduce the estate tax exclusion is still in it.
Even if this does not happen, the exclusion is scheduled to go back to the 2017 level of $5.49 million indexed for inflation on January 1, 2026.
The Connecticut estate tax exclusion is contact form to send us a message.
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.
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