Estate Tax Federal, Connecticut and NY

The sad fact (it's sad because I don't have $10.98M) is that most of us don't have to worry about the Federal Estate Tax anymore.   Now, you can have $5.49 million ($10.98M if married) and not incur federal estate tax.

Etate-planning
Estate Tax CT

Estate Tax Planning

Most of "Estate Tax Planning" revolved around avoiding the Federal Estate Tax.  So, we can just dispense with the Estate Planning now?

Unfortunately, that is not the case.  Connecticut estate tax starts at $2M.  The rate starts at 7.2% and goes up to 12%. New York estate tax starts at a mere $2.062M (just changed by a 3-14 law rising to $5.25M-the federal amount-in 2019).  The rate starts at 5% and goes up to 16%.

If you are lucky enough to have to worry about the Federal Estate Tax, the rate starts at 18% and quickly ratchets up to 40%.

So, the short answer is that you still need to do Estate Tax Planning to minimize the state taxes (especially in Connecticut and New York), unless you want to gratuitously pay 5% to 16% of your estate to the tax man.  And whether you live in Easton CT or Bedford NY makes a difference in how much tax you will pay.  

Gift Tax

Fortunately, you can still give $14K to each beneficiary every year free of gift tax.

Estate Planning Techniques

If you need to plan to minimize Estate Taxes there are various techniques we can use including recapitalizations, grantor trusts, GRATs, QPRTs, charitable remainder trusts, sales to intentionally defective trusts, and family limited partnerships/LLCs.

Federal Estate Exemption and Tax Rate

For 2017, the federal estate and gift tax exemption is $5.49 million per person, up from $5.45 million in 2016. That means an individual can leave $5.49 million to his heirs and pay no federal estate or gift tax. A married couple will be able to shield about $11 million ($10.98 million) from federal estate and gift taxes.

The federal estate and gift tax exemptions rise with inflation, and are changed every year.

If you are lucky enough to have to worry about the Federal Estate Tax, the rate starts at 18% and quickly ratchets up to 40%.

Connecticut Estate Exemption and Tax Rate

In 2017, the Connecticut estate tax starts at $2M.  The rate starts at 7.2% and goes up to 12%.

Because the exemption in Connecticut is only $2M and the federal exemption is almost $5.5M, you can have no federal liability and still incur a Connecticut tax liability.

New York Estate Exemption and Tax Rate

New York estate tax starts at a $5.25M (changed by a 3-14 law rising to the full federal amount-in on 1-1-19).  The rate starts at 5% and goes up to 16%.  

Therefore, New York is generally the same as the federal exemption.  However, beware the New York estate tax cliff where the entire estate is taxed if it goes over the exemption amount.

The New York Estate Tax Cliff

The New York estate tax is calculated unlike the taxes of other states. Under the systems of other states (and the federal government), if an estate is large enough to be subject to the tax, only the amount that's over the exempt amount is taxed. For example, if the exempt amount is $2 million, and the taxable estate is $2.5 million, then only $500,000 would be subject to the estate tax.

On the other hand, if the estate is under the exempt amount in New York, there is no tax.  If it is over the exempt amount, the entire estate is taxed without reduction by the exemption.  For example, if someone dies in 9-17, leaving a taxable estate of $6,000,000 the estate would exceed the New York exempt amount of $5.25M by only $750,000. However, the entire estate would then of $6M would be taxed. 

Estate and Inheritance Tax in Other States

In the rest of the country in 2017, fifteen states and the District of Columbia have an estate tax and six states have an inheritance tax. Maryland and New Jersey have both. 

Estate Plan

While planning to minimize or avoid estate taxes is  an important reason to meet with an estate planning attorney, creating an estate plan is more about about providing protections during lifetime, such as avoiding a guardianship or conservator ship proceeding if you're incapacitated and protecting your nest egg from the possibility of an extended stay in a nursing home.

John has an advanced law degree (LLM) in Taxation and is also an accountant with over 20 years of tax experience, so he has the credentials to represent you in a superior manner.

Call John now to make sure your money goes to your loved ones and not the government.

 

Elder, Wills, Estates, Trusts, Special Needs Tax & Business Law; Attorney John Sweeney

Sweeney Legal, LLC, provides legal, practical, and business counsel to Seniors, families, and businesses in the Fairfield, Connecticut area, including the communities of Bridgeport, Bethel, Brookfield, Danbury, Darien, Easton, Fairfield, New Canaan, Newtown, Norwalk, Redding, Ridgefield, Stamford, Weston, Westport and Wilton. John is also licensed in New York serving Westchester County including the towns of Bedford, Lewisboro, Mount Kisco, North Salem, Pound Ridge, and Somers.

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