Estate and Gift Tax FAQs

• • Are all estates subject to the federal estate tax?

• • The answer to this question is a resounding no. There is an estate tax credit or exclusion that allows you to transfer a certain amount before the tax would become applicable. We will not share an exact number here because it is updated annually to account for inflation, but it is over $11 million. 

    Clearly, a very small percentage of Americans are going to be transferring more than this amount to the heirs. This being stated, those that are exposed are looking at some significant wealth erosion, because this tax carries a 40 percent maximum rate. 

• • Is there any type of transfer that is exempt?

• • Yes, there is an unlimited marital estate tax deduction. If you are married to an American citizen, you can leave any amount of property to your spouse free of the estate tax. Of course, it would be in play when your spouse’s estate is being administered. 

     

    However, the estate tax exclusion is portable. This means that a surviving spouse would be able to use the exclusion that was allotted to their deceased spouse, so they would have two exclusions to combine. 

• • Can you give gifts to avoid the estate tax?

• • This is one of those questions with a yes or no answer. There is a federal gift tax in place that is unified with the estate tax. As a result, the main exclusion is a unified one that encompasses postmortem asset transfers along with lifetime gifts. 

     

    So, if you were to use up all of your unified exclusion giving tax-free gifts while you are living, your entire estate would be subject to taxation. 

    On the positive side of the coin, there is an annual gift tax exclusion that sits apart from this unified gift and estate tax exemption. You can use it to give as much as $15,000 to an unlimited number of gift recipients without incurring any gift tax exposure.  Another gift tax exemption gives you the ability to pay school tuition for students without being taxed for your generosity. There is a health care exemption as well, and this allows you to pay medical bills for others with no gift tax liability, including health care insurance premiums. 

• • Is there a state-level estate tax in Connecticut?

• • Yes, there is a Connecticut state estate tax. It is possible to have state estate tax exposure even if you are exempt from the federal tax, because the exclusion is considerably lower.  

     

    Once again, the numbers are adjusted periodically, but the state level exclusion is about half of the federal exclusion. It is a graduated tax with rates that span from 7.2 percent up to 12 percent. 

    We should point out the fact that there are a small handful of states that impose state-level inheritance taxes. Unlike an estate tax, an inheritance tax is levied on transfers to each individual nonexempt inheritor.  

     

    Because of this dynamic, there could potentially be multiple impositions of an inheritance tax when one estate is being administered. There is no Connecticut inheritance tax, and in the states that have one, close relatives are exempt. 

We Are Here to Help! 

An attorney from our firm would be more than glad to provide assistance if you would like to discuss your estate planning objectives with a licensed professional. Each situation is different, and there are many tools in the estate planning toolkit, so personalized attention is very important. 

We can get to know you, gain an understanding of your situation, and make the appropriate recommendations. If you decide to go forward, we can help you create a custom crafted estate plan that is ideal for you and your family. 

You can schedule a consultation appointment right now if you give us a call at 860-548-1000. There is also a contact form on this website that you can use to send us a message.