Estate Planning | Making a Difference One Family at a Time

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estate tax exclusionEstate planning attorneys emphasize the fact that this is an ongoing process because things change. You may experience life events that make portions of your estate plan obsolete, and events that are outside of your control can enter the picture as well.

Changes to existing laws would fit into the latter category, and there is a huge event looming over the horizon that will expand estate tax liability all around the country.

Federal Estate Tax Exclusion

The federal estate tax credit or exclusion is an amount that can be transferred tax-free. Any portion of an estate that exceeds the credit is potentially subject to the tax and its 40 percent maximum rate.

In 2017, the Tax Cuts and Jobs Act was passed by Congress and signed into law. At that time, the exclusion was $5.49 million, and it had been at this level with ongoing inflation adjustments since 2011.

A provision in this piece of legislation essentially doubled the estate tax exclusion indexed for inflation. In 2018, the exclusion was $11.18 million, and in 2024, it stands at $13.61 million.

There is an unlimited marital deduction, so you can transfer any amount of property to your American citizen spouse without being taxed. The exclusion is portable, so a surviving spouse can utilize their deceased spouse’s exclusion.

Federal Gift Tax

Lifetime gift giving would make sense as a way to get around the estate tax, but unfortunately, there is a gift tax as well. The estate tax and gift tax were unified in 1977, so the $13.61 million exclusion that we have this year applies to large lifetime gifts and your estate.

That’s bad news, but the good news is that there is an additional annual gift tax exclusion that is separate from the unified exclusion. You can give up to $18,000 per year to an unlimited number of gift recipients tax-free without using any of your larger exclusion.

Connecticut State Estate Tax

Here in Connecticut where we practice, there is a state-level estate tax that sits apart from the federal tax. As a result, your estate could potentially be taxed from two different directions.

Up until this year, the state exclusion was lower than the federal exclusion. However, it is now equal to the federal exclusion, so it is $13.61 million in 2024.

Sunset of Tax Cuts and Jobs Act

This legislative measure that included the highest exclusion in our nation’s history is going to expire or sunset on January 1, 2026. At that time, the exclusion will go back down to the 2017 level of $5.49 million but it will be indexed for inflation.

When you digest this information, you can see an opportunity. Between now and that sunset date, you could potentially utilize the larger exclusion if your estate is going to be exposed to taxation.

There are certain types of trusts that can be used to transfer assets in a tax efficient manner. You can use this exclusion to fund a trust or trusts to mitigate your estate tax exposure.

Take Action Today!

If your family is going to be impacted by estate taxes, we can help you create a plan that will ease the burden. However, even if you do not have to be concerned about taxation, your plan should be carefully crafted to suit your specific needs.

When you engage our firm, we will learn about your family dynamic and your objectives and make recommendations based on the circumstances. At the end of the process, you will go forward with a tailor-made plan that is perfect for you and your family.

You can schedule a consultation at our Westport or Glastonbury, CT estate planning offices by calling us at 860-548-1000, and you can use our contact form to send us a message.

Diana O'Rourke, Estate Planning Attorney
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