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Federal and Connecticut Estate Tax Law Changes That Could Affect Your Family’s Estate

Changes to federal and Connecticut estate tax law could significantly affect your plans and leave your loved ones with less inheritance than you expected. However, strategic use of trusts and other estate planning strategies could help you protect your assets, and your family’s estate.

In this article, we explain how changes in estate tax law could affect estate administration. We discuss the importance of working with your estate planning attorney to be sure the documents in your estate plan meet your estate goals despite these tax changes. It will also explain how Connecticut families can keep their estate plans up-to-date with current laws and worry less about taxes and other details by joining the Family Care Plan, Safeguarding Tomorrow offered by The Northeast Law Center.

We can help you stay on top of changes to the tax laws that affect your family’s estate. Contact us at The Northeast Law Center to learn more about what you can do to reduce your estate tax burden to the extent possible. To get started with us, click here to Contact Us. Fill out the form on our website and submit it. You can also call our Putnam office at 860.928.2429.

Federal Estate Tax Exemption Increased in 2018

In the final days of 2017, the U.S. Congress passed the Tax Cuts and Jobs Act[1], one of the biggest tax reform laws in recent memory. One of the many changes the law made was to significantly increase the amount a person can leave to his or her descendants without having to pay any estate tax.

In 2017, the federal estate tax exemption was $5,490,000.[2] That means before any taxes were due on a person’s estate, that estate had to be worth more than just under $5.5 million. The IRS then assessed an estate tax on any portion of the estate higher than the tax exemption. The amount of that tax depended on how large the remaining assets were.

As a result of changes to the federal tax code, in 2019, the new estate tax exemption will be $11.4 million per individual. That means married couples can shield up to $22.8 million.[3] These values are adjusted for inflation and will continue to increase until 2025. However, at that time the new tax cuts will expire, and the federal estate tax exemption will return to 2017 levels, unless Congress votes to extend the changes in the meantime.

Connecticut Estate Tax Law Is in Flux

Connecticut is one of 13 states to impose a separate estate tax over and above the federal taxes. On October 31, 2017, Governor Malloy signed a new state budget[4] that gradually increased the Connecticut estate tax exemption to:

  • $2.6 million in 2018,
  • $3.6 million in 2019,
  • The federal exemption amount in 2020.

At the time that law was passed, the federal tax exemption that Connecticut planned to tie into was $5.49 million. However, two months later, that exemption amount increased dramatically as explained above, so Connecticut lawmakers acted again, twice.

On May 15, 2018, the state legislature passed a law gradually increasing the Connecticut estate tax exemption to match up with the federal limits by 2023[5]. Then on May 31, 2018, it passed a second bill that capped exemptions at $5.49 million in 2020 and never connected the state tax to the federal estate tax exemption at all.[6]

Commentators believe that these conflicting laws will be addressed soon through even more legislation. However, that leaves Connecticut taxpayers facing an uncertain tax future that could substantially affect their family’s estates after they have passed away.

Creating an Estate Plan to Deal with Estate Tax Uncertainty

While the specific limits of the Connecticut estate tax exemption remain in flux, one thing is clear: state and federal estate taxes can have a serious impact on families whose assets exceed those limits. However, a strategic estate plan, together with regular reviews and updates, can minimize the impact and, in some cases, avoid triggering estate tax consequences at all.

Using Trusts to Protect Assets from Estate Tax

One significant tool in the fight to avoid estate tax consequences is a trust. By creating a separate trust entity and transferring assets into that trust while alive, Connecticut families can avoid creating large inheritances or estates which trigger tax consequences. The trust survives, even after the person who creates it passes away, and pays benefits to the person’s family members over time. By setting up a trust now, Connecticut taxpayers may legally avoid a significant tax assessment on their estates.

Keeping Your Estate Plan Up to Date with Our Family Care Plan

Another tool available to estate planning clients at the Northeast Connecticut Law Center is our Family Care Plan, Safeguarding Tomorrow. This program helps our clients stay on top of changing laws and life circumstances that could affect their family’s estate and inheritances. Members of our Family Care Plan receive:

  • Annual reviews of their family situation to catch their estate plan up with important changes in their households,
  • Coordinated family meetings to ensure trusted family members and professionals understand their estate plan ahead of time,
  • Periodic legislative reviews and document updates when changes happen in the law that could affect their family’s estates.

With this care plan in place, and federal and Connecticut estate tax laws change, you have the peace of mind that comes with knowing your estate planning attorney has you covered. Through a careful use of trusts and other estate planning strategies, you can protect the inheritance you have envisioned for your loved ones. With periodic reviews through our Family Care Plan, Safeguarding Tomorrow, you can have confidence that your estate planning documents are never out of date. If you would like to have some peace of mind regarding your estate plan, call us to learn more about this special feature.

The estate planning attorneys at the Northeast Connecticut Law Center want to help you provide for your family now, and in the future. Contact us to learn more about how federal and Connecticut estate tax laws could affect your family’s estate, and what you can do to reduce you tax burden. To get started with us, click here to Contact Us. Fill out the form on our website and submit it. Or, call our Putnam office at 860.928.2429.

[1] Public Law 115-97 of 2007
[2] Federal Estate Tax Exemptions 1997 Through 2019, Julie Garber, The Balance, February 6, 2019.
[3] IRS Announces Higher 2019 Estate And Gift Tax Limits, Ashlea Ebeling, Forbes, November 15, 2018.
[4] State of Connecticut FY 2018 – 2019 Biennial Budget
[5] Public Act 18-81, May 15, 2018
[6] Public Act 18-49, May 31, 2018

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