Housing prices have been the talk of the investment community over recent years. Buyers are having a hard time closing deals because of a supply and demand dilemma. In some areas, people are actually offering significantly more than sellers are asking, so this is bull market.
We have an office in Westport. In Fairfield County, median home values have increased by 43.5 percent over the last couple of years according to NBC News Connecticut. Statewide, the figure is 32 percent.
This is a great development for homeowners and investors, but a significant improvement in your financial status could lead to estate tax liability.
Federal and State Estate and Gift Taxes
Transfer taxes looms large for Connecticut residents that have been financially successful. The federal estate tax carries a 40 percent top rate at the present time, but there is a rather high credit or exclusion.
This is an amount that you can transfer before the estate tax would potentially be applicable on the remainder. It was increased from $5.49 million to $11.18 million in 2018 when the Tax Cuts and Jobs Act went into effect. This year, the exclusion stands at $11.7 million.
You do not have to be concerned about estate taxes on transfers to your spouse, because there is an unlimited marital deduction. One caveat is the fact that this deduction is only available to citizens of the United States.
The estate tax exclusion has been portable since the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was enacted. This means that a surviving spouse can use the exclusion that would have been available to their deceased spouse.
There is a federal gift tax that has been unified with the estate tax since the 1970s. The $11.7 million exclusion that we have this year applies to your estate and large lifetime gifts.
In addition to this exclusion, there is a separate annual gift tax exclusion. It allows you to give as much as $15,000 to any number of people annually free of taxation.
Here in Connecticut, we have a state-level estate tax as well, and the exclusion is $7.1 million. Connecticut is the only state in the union with a gift tax, so you cannot give large lifetime gifts to avoid the state estate tax.
If your real estate holdings have been increasing significantly in value, you may have estate tax exposure even if you do not consider yourself to be extraordinarily wealthy. This may become more likely if a piece of legislation that is pending is enacted.
For the 99.5 Percent Act
Senator Bernie Sanders of Vermont has introduced the For the 99.5 Percent Act, and it would make major changes to the federal estate tax parameters. A provision in the measure would reduce the estate tax exclusion to $3.5 million, which is where it was back in 2009.
Another aspect of the measure would take aim at the annual gift tax exclusion.
Right now, people that are exposed transfer taxes use the annual $15,000 per person exclusion to fund irrevocable trusts that provide tax efficiency. They also utilize it to transfer resources into family limited partnerships.
As we have stated, there is no limit to the amount that you can transfer tax-free in this manner as long as you do not give more than $15,000 to any one person. Under the terms of this measure, gifts to these entities would be limited to a total of $15,000.
Attend a Free Seminar!
We are conducting a series of seminars of the coming weeks, and you can come away with a great deal of useful knowledge if you join us. There is no charge, and they are held at convenient locations throughout our service areas, so this is a great opportunity.
You can see the dates if you visit our seminar schedule page, and when you identify the session you would like to attend, follow the instructions to register.
Need Help Now?
If you already know that you should work with a Glastonbury or Westport, Connecticut estate planning lawyer to put a plan in place, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021.
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