One of the first things that you must do when you are planning your estate would be to inventory your assets.
To be able to know what you are passing along to your loved ones you need to know exactly what it is that you have to give. The quantity of what you have is part of the equation, but you also have to understand the form of the assets that you have.
Some of them are not going to be liquid. Some of your assets will have sentimental value to certain specific members of the family. Once you start to see a clear picture you can start to make intelligent inheritance plans.
An underlying purpose for the inventory would be to determine whether or not you are going to be subject to federal and/or state transfer taxes. Let’s take a look at these taxes and the parameters that surround them.
Federal Estate Tax
There is a federal estate tax in the United States and it is relevant to people in all 50 states. After the passing of the American Taxpayer Relief Act of 2012 we have guidelines that are supposed to be “permanent.”
Of course permanency is never really literally intact when you’re talking about laws that can be changed. However, these guidelines are permanent in that there is no particular expiration date for them.
Back at the end of 2010 the estate tax exclusion was set at $5 million for 2011 with an allowance for an adjustment for inflation in 2012. In 2012 the exclusion was $5.12 million.
After the enactment of the American Taxpayer Relief Act this base of $5 million was retained along with ongoing adjustments for inflation. After the most recent adjustment we have a $5.25 million exclusion in 2013.
In 2012 the maximum rate of the estate tax was 35%. It has now been set at 40%.
So, if your assets exceed $5.25 million in total value you are subject to the federal estate tax.
Gift Tax
We also have a federal gift tax. This tax is unified with the estate tax. What this means is that the $5.25 million exclusion encompasses the combination of gifts that you give throughout your life that are taxable and the value of your estate as you are bequeathing it to your loved ones.
There is however a $14,000 per person, per year gift tax exclusion. The first $14,000 you give to any one person during a given year can be given tax-free, and it does not count against your unified lifetime gift/estate tax exclusion.
Generation Skipping Transfer Tax
There is also a tax on asset transfers to people that are more than one generation younger than you who are in your family, or those who are at least 37.5 years younger than you are not family members.
Connecticut State Estate and Gift Taxes
In the state of Connecticut we have a state-level estate tax, and a state-level gift tax. The Connecticut estate tax exclusion in 2013 is $2 million.
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