The more assets and wealth you accumulate in your life, the larger the estate you will leave behind for your children and other loved ones. Your wealth can provide an opportunity for a lasting legacy, as you can make a positive impact on many people that you care about or even give funding to charities posthumously.
Unfortunately, at some point, that accumulated wealth becomes a liability for potential estate taxes. Some taxes can apply to the intergenerational transfer of wealth, even within a family, in some instances, with the highest possible taxes reaching 40% of the estate’s value.
As someone with a sizeable estate in Connecticut, you may find yourself worrying about whether your loved ones will have to pay state taxes after you die and how much those taxes could diminish the legacy you hope to create. Depending on the total value of your estate, you may want to engage in tax minimization planning for your estate now for greater peace of mind later in life.
Connecticut does collect state estate taxes
Only a minority of states expect to receive taxes from estates from residents who pass away, and Connecticut is one of them. As of 2020, estates in Connecticut with a value of up to $5.1 million are exempt from state estate taxes.
The amount of tax liability increases with the overall value of the estate, as the Connecticut estate tax, like the federal one, is progressive. In other words, the higher the taxable value of the estate, the higher the potential tax rate. The Connecticut estate tax maxes out at either 12% or $15 million, as of 2019.
How much does your estate have to be worth for federal estate taxes?
The federal government is relatively lenient in its allowances for the size of an inherited estate. They have adjusted and increased the maximum amount of an estate that someone can exempt from taxation in recent years.
For an estate going through probate in 2020, the estate exemption cut-off will be $11.58 million. Any estate up to that amount is exempt from estate taxation at the federal level.
If you have any reason to think that the value of your state will exceed that amount, then careful estate planning, including the creation of a trust or giving gifts to your family members before you die, could be a way to reduce that tax burden on the people you love.