Estate Taxes – Connecticut Estate Planning & Probate

How Often Should You Review Your Estate Plan?

Estate plans are created at a specific point in time. Having an estate plan is important for many reasons. Some of these reasons include ensuring your wishes are followed for who will receive your assets after you pass away; providing for loved ones; minimizing estate taxes and maximizing family wealth for future generations; maintaining your independence should you become incapacitated; avoiding conservatorships; avoiding court intervention; minimizing family conflict; asset protection; and ensuring that your wishes for end of life health care are honored in the event you are unable to communicate with your healthcare professionals.

It’s been said that the only constant in life is change. This truth has significant implications for estate planning. Changes in your circumstances – death of a spouse, marriage, divorce (yours or your children’s), birth of a child or grandchild, significant changes in your health or financial circumstances, or moving to another state – may require an update to your estate plan.

The law is in a constant state of change. Here in Connecticut, major changes to the Connecticut estate and gift tax will become effective on January 1, 2018. In 2016 and 2017, Connecticut law governing powers of attorney have seen the most dramatic changes in many years. These changes may affect your estate plan – the only way to know for sure is to have a qualified attorney review your estate plan.

It’s also important to review your estate plan every 3-5 years.

If you have no estate plan, it’s important to make an appointment with an estate planning attorney to discuss creating an estate plan.

It’s easy to forget about estate planning. Most people put off estate planning entirely. After all, there are no consequences to not having an estate plan until a dramatic life event – such as incapacity or death occurs. Unfortunately, once those events take place, there are very few options available compared to those at the disposal of those who plan well in advance of such events.

There is a common – and erroneous – perception that estate planning is only for the very wealthy. That is an unfortunate fact. In my 15 years on the bench as a Connecticut probate judge, I see people from all walks of life who would have been much better off had they put an estate plan in place.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR ADVICE AS TO YOUR SPECIFIC SITUATION PLEASE CONSULT WITH A QUALIFIED ATTORNEY.

For more articles and presentations by Dom Calabrese, visit his website at https://DCalLaw.com

Connecticut Estate Taxes Part 1

For Connecticut residents who die on or after January 1, 2005, Connecticut imposes a state estate tax. This is in addition to the federal estate tax. Connecticut residents who died before that date were subject to a different scheme of state “death taxes” that are not covered in this article.

Estate tax is complex; rates and deductions vary depending on the date of death. For that reason, readers are cautioned that the scope of this article is limited to general information. You should draw no conclusions about your specific situation without consulting a qualified estate planning or tax attorney, or accountant.

The Connecticut estate tax is calculated based on the value of all the assets in which the person who passed away had an ownership interest. For example, if the person who passed away owned Connecticut real estate in survivorship with another person, one-half the fair market value of that real estate would be used to calculate the gross taxable estate.

Certain allowable deductions may be subtracted against the gross estate to arrive at the amount of the deceased person’s estate that is taxable. For Connecticut residents who die between January 2011 and the present, there is a $2 million exemption. This means that the first $2 million of each Connecticut resident who dies during that period is not subject to Connecticut estate tax.

To illustrate how the date of death affects the Connecticut estate tax, for those who passed away between January 1, 2005 and December 31, 2009, the $2 million exemption only applied to estates with a taxable value of $2 million or less. If an estate had a taxable value of $2,000,001, the exemption would not apply at all and the entire value of the estate would be subject to Connecticut estate tax. So, an estate with a taxable value of $2,000,001 has a Connecticut estate tax liability of approximately $100,000. This bizarre outcome was eliminated for Connecticut residents passing away on or after January 1, 2010 following a change in the law.

All transfers between spouses are not subject to the estate tax, even if they are in excess of the current personal exemption, which is $2 million. Charitable bequests, real estate located outside of Connecticut, and tangible personal property located outside Connecticut (for example, motor vehicles located and registered in another state) are just a few of the allowed deductions.

The Connecticut estate tax is progressive, similar to the federal income tax: the rate of the tax increases as the value of the taxable estate increases. These rates are different for different years, based on the year of death. For example, for those who passed away between January 1, 2005 and December 31, 2009, the lowest marginal rate is just over 5%, with the top marginal rate being 13.6%. For those who passed away beginning January 1, 2011 the lowest marginal rate is 7.2%, with the top marginal rate being 12%.

For more articles and presentations by Dom Calabrese, visit his website at http://www.domcalabreselaw.com

Advantages of Living Trusts: Connecticut Estate Tax Planning

This last article in my series on the advantages of living trusts looks at how living trusts can be used in planning for Connecticut estate taxes. Connecticut estate taxes may be due after a Connecticut resident passes away. For Connecticut residents who passed away in 2011 until the present, there is a $2 million Connecticut estate tax exemption: the first $2 million of each Connecticut resident’s estate is exempt from Connecticut estate tax liability when that person dies.

However, between a married couple, the exemption is unlimited: any amount could be transferred to the surviving spouse upon the death of the first spouse with no Connecticut estate tax liability, even if the transfer to the surviving spouse exceeds $2 million. This unlimited spousal exemption comes at a price: when the first spouse dies, their $2 million exemption may be “lost” unless there is a plan to preserve it. A trust can be established to “save” the Connecticut estate tax exemption – $2 million – upon the death of the first spouse.

Let’s look at a simplified, fictitious example of how this might work. Edgar and Florence Poe, a Connecticut married couple with three adult children, own $4 million in combined assets. Edgar’s will and Florence’s will each provide that upon the death of the first of them, all assets go to the survivor.

Edgar is the first to pass away. Under Edgar’s will, all of his assets go to Florence. There is no Connecticut estate tax due because of the unlimited spousal exemption, and Florence now owns $4 million in assets.

When Florence passes away, if Connecticut estate tax laws don’t change, only one $2 million exemption will be available for Florence if she doesn’t remarry. If Florence’s estate is valued at $4 million, $2 million will be subject to Connecticut estate taxes. Edgar’s $2 million Connecticut estate tax exemption is essentially “lost” in this example.

Next, let’s look at the same couple – Edgar and Florence, with $4 million in combined assets. In this example, Edgar and Florence create living trusts designed to preserve the estate tax exemption. In Edgar’s will, there is a provision that, upon his death, $2 million goes directly to Florence; the other $2 million is transferred to a trust for Florence’s benefit. Because of the $2 million Connecticut estate tax exemption, assets passing into the trust are not subject to Connecticut estate tax. Because of the unlimited spousal exemption, the $2 million passing directly to Florence is not subject to Connecticut estate tax.

When Florence passes away, the $2 million in Edgar’s trust may be distributed to the Poe’s children, grandchildren, or anyone else provided for in the trust. Because the assets in Edgars’ trust may not be subject to Connecticut estate tax, there may be no Connecticut estate tax due for trust assets when Florence passes away. Florence’s estate can apply the $2 million Connecticut estate tax exemption for the $2 million remaining in Florence’s name.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON AS LEGAL ADVICE. CONSULT A QUALIFIED ATTORNEY FOR ADVICE REGARDING YOUR SITUATION.

2016 Connecticut Estate Taxes & Probate Fees

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Three Probate Myths, Misconceptions & Mistakes

This article examines 3 common probate mistakes, misconceptions and myths.

Myth: Probate can be totally avoided by placing assets in survivorship or a living trust.

This myth is often promoted by purveyors of “one size fits all” living trust packages. When a Connecticut resident dies, even if all their assets are in survivorship or a revocable living trust, probate proceedings are still necessary for Connecticut estate tax and probate fee clearance. If probate proceedings don’t take place, there will be a problem when the real estate in which the deceased person had an interest is sold. Property in a living trust or survivorship allows for transfer of ownership independent of the probate court; the probate court has no role determining the legal owner of that property (one element of “avoiding probate”.) However, the Connecticut Department of Revenue Services treats property in a trust or survivorship as includible for calculating Connecticut estate taxes liability and probate fees. Property is clear of Connecticut estate tax and probate fee liens only after the probate court issues a release of lien upon payment of the probate fee and any outstanding Connecticut estate tax.

Misconception: Probate fees and taxes can cost 33% or more of an estate’s value.

Three fees and taxes that may be assessed on a deceased person’s assets are federal estate tax, Connecticut estate tax, and Connecticut probate fees. For anyone dying with less than $2 million in assets in 2016, there will be no federal or Connecticut estate tax liability. Connecticut probate fees are progressive and based on the value of the deceased person’s estate: the greater the value of the estate, the higher the probate fee. In Connecticut, probate fees are established by law, not by probate judges and courts. The courts must strictly adhere to the established fee schedules. Probate fees range from one third of one percent to one half of one percent. For example, if a Connecticut resident dies owning assets valued at $600,000, the Connecticut probate fee will be approximately $2,100. A change in the way probate fees were calculated in 2015 removed the $12,500 “cap” on probate fees and increased the marginal rate for estates valued in excess of $2 million to one half of one percent – a significant increase in probate fees for high value (multi million dollar) estates. It’s likely that more changes to Connecticut probate fees are on the horizon and will be the subject of a future article. However, Connecticut probate fees are far lower than the 33% or more that some people believe.

Mistake: Relying on the advice of a well-meaning bank teller, friend, nurse, social worker or contractor for probate and estate planning advice.

Even after fourteen years as a probate judge, I am still amazed by how many people believe they can dispense advice on probate matters! I’ve seen people proceed in probate relying on the advice of well-meaning relatives, friends, neighbors, bank tellers, nurses, social worker and others. Probate is a highly specialized area of the law, and even very few attorneys are well versed in probate law. Attorneys with substantial probate experience are most qualified to give reliable advice. Probate court clerks cannot give legal advice, but are able to answer many questions and provide probate forms to the public. Unlike other courts, many – but not all – matters in Connecticut probate courts do not require an attorney.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON, AS LEGAL ADVICE. CONSULT A QUALIFIED ATTORNEY FOR ADVICE REGARDING YOUR SITUATION.

Trusts & Connecticut Estate Tax

This article on advantages of living trusts examines how trusts may be used in planning for Connecticut estate taxes. Connecticut estate taxes may be due after a Connecticut resident passes away. Beginning in 2011, there is a $2 million Connecticut estate tax exemption. This means that the first $2 million of each Connecticut resident’s estate is exempt from Connecticut estate tax liability when that person dies.

However, between a married couple, the exemption is unlimited: any amount could be transferred to the surviving spouse after the death of the first spouse. There would be no Connecticut estate tax liability, even if the value of the estate exceeds $2 million. This unlimited exemption comes at a “price” however: the deceased spouse’s $2 million exemption is lost. A trust can be established to “save” the Connecticut estate tax exemption – $2 million – upon the death of the first spouse.

Let’s look at a fictitious example of how this might work. Edgar and Florence, a Connecticut married couple, have $4 million in combined assets. They also have three adult children. Edgar’s will and Florence’s will each provide that upon the death of the first of them to pass away, all assets go to the surviving spouse.

Edgar is the first to pass away. According to Edgar’s will, all of his assets go to Florence. There is no Connecticut estate tax due because of the unlimited spousal exemption, and Florence now owns $4 million in assets.

When Florence passes away, if the Connecticut estate tax laws don’t change, only the single $2 million exemption will be available for Florence if she doesn’t remarry. If Florence’s estate is valued at $4 million, $2 million will be subject to Connecticut estate taxes, with a Connecticut estate tax liability. Edgar’s $2 million Connecticut estate tax exemption is essentially “lost” in this example.

Next, let’s look at the same couple – Edgar and Florence, with $4 million in combined assets. In this example, Edgar and Florence create specially drafted living trusts designed to preserve the Connecticut estate tax exemption. In Edgar’s will, there is a provision that, upon his death, $2 million goes directly to Florence; the other $2 million is transferred to a living trust for the benefit of Florence. Because of the $2 million Connecticut estate tax exemption, the assets passing into the trust are not subject to Connecticut estate tax. Because of the unlimited spousal exemption, the $2 million passing directly to Florence is not subject to Connecticut estate tax.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON AS LEGAL ADVICE. PLEASE CONSULT A QUALIFIED ATTORNEY FOR ADVICE AS TO YOUR SITUATION.