A lot of people that do not have estate plans in place know that it is a responsibility that they should address, but they do not know how to begin in earnest. As a result, they continue to procrastinate, and their families are at risk.
With this in mind, we will share three relatively easy steps that you can take to put the estate planning process in motion.
Calculate the Value of Your Assets
The first step is to inventory all the assets that you expect to be able to pass along to your loved ones, and you can make projections about the future. You should take note of appreciable assets and come up with an estimate of the estate’s overall value.
On an obvious level, you have to know exactly what you will be transferring to the people on your inheritance list to prepare yourself for the next step. There is also the matter of potential taxation, and you have to evaluate any liability that you may have.
You can transfer a certain amount tax-free before the federal estate tax would be levied on the remainder. This tax carries a 40 percent top rate, so it can have a significant impact on your legacy if you are exposed.
At the end of 2017, the Tax Cuts and Jobs Act was enacted, and it established a record high exclusion for 2018. It went from $5.49 million to $11.18 million, and it is $11.7 million this year after a series of inflation adjustments.
When you are calculating your potential exposure, you should factor in a change that is coming in 2026. At that time, the provision in the aforementioned piece of legislation that set the record-high exclusion is going to expire or sunset.
On January 1, 2026, the exclusion will be reduced to the 2017 figure of $5.49 million. This trajectory has already been established, but there is another wildcard to take into consideration.
Senator Bernie Sanders of Vermont has introduced the For the 99.5 Percent Act. It includes a reduction in the exclusion to just $3.5 million, and the rate of the tax would go up to 45 percent for the first $10 million, it would graduate upward from there.
The maximum rate for estates that are valued at over $1 billion would be 65 percent if this measure becomes law.
Here in Connecticut, we have a state-level estate tax, so your estate can be subject to two different levels of taxation. The exclusion on the state-level is 7.1 percent, and the rate is graduated rate right now. It starts at 10.8 percent, and it maxes out at 12 percent.
We should point out the fact that the rate is going to be changed to a flat 12 percent rate for all estates that are exposed to the state-level estate tax in 2023.
If you are a Connecticut resident but you own valuable property in a state that has its own estate tax, the tax in that state would apply to your estate if its value exceeds the exclusion. This is something that you should look into if you own valuable real estate elsewhere.
Make Inheritance Distribution Decisions
The second step is to decide how you are going to distribute your resources, and you should evaluate each inheritor separately, because there are different ways to transfer assets.
For example, you may feel comfortable leaving a direct lump sum inheritance to one of your children, and another one may be a poor money manager, so you have concerns.
Under these circumstances, you could establish a living trust with a spendthrift provision that would protect the assets from the beneficiary’s creditors. When you draw up the trust, you can instruct the trustee to distribute limited assets on an incremental basis to prevent reckless spending.
This is just one scenario that can exist, but there are many tools in the estate planning toolkit, so you should be ready to discuss your options with your estate planning attorney.
Schedule a Consultation
Once you know what you have and how you would like it to be distributed, it is time to consult with an estate planning lawyer from our firm. We can gain an understanding of your objectives and your financial position and help you devise a plan that ideally suits your needs.
If you are ready to get started, you can call us at 860-548-1000 to schedule a consultation at our estate planning office in Glastonbury or Westport, CT. There is also a contact form on this site you can use if you would prefer to send us a message.
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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