How Estate Taxes Work In Connecticut
A common question we get is, “Will my heirs have to pay an estate tax?” In most cases unless the current laws change, the answer is no. The estate tax only applies in cases where individuals die leaving millions of dollars in assets. Still, because laws change, it is important to understand how the estate tax works, when it does apply, and what can be done to mitigate any potential tax liability.
What Is the Estate Tax?
The estate tax is often confused with an inheritance tax. The inheritance tax refers to the tax paid by the person who receives a bequest from an estate. Neither federal government nor Connecticut imposes an inheritance tax (although a few states still do). Therefore, if you have any heirs living in Connecticut, they will not be required to pay any tax on money or property that they receive from your estate.
What exactly, then, is the estate tax? It is a tax imposed on the transfer of property by the decedent’s estate. This is the tax on the property going to beneficiaries. This tax is paid by the estate rather than by the beneficiaries.
The federal government imposes an estate tax. Currently, Connecticut is one of 12 states and the District of Columbia that impose an estate tax. Accordingly, if you are a Connecticut resident, it is possible your estate will owe state estate taxes.
Therefore, in some cases, an estate will owe both Connecticut and federal estate tax.
Exemptions From the Estate Tax
Now, just because an estate tax is possible does not mean that it will be imposed. Indeed, the trend in recent years has been to increase the amount of property that is exempt from taxation altogether. At the federal level, for example, the estate tax exemption for persons who die in 2022 is $12.06 million. In other words, if you die this year, your estate will owe no estate tax on the first $12.06 million in property that you leave behind. For most of us, that renders the estate tax a non-issue. If there is federal estate tax liability because the estate is valued over that amount, unless the current law changes, it will pay up to 40 percent in estate taxes.
In Connecticut, the 2022 exemption is quite generous at $9.1 million. Again, if you leave less than that amount in assets, your estate will owe nothing. If you leave between $9.1 million and $10.1 million, Connecticut imposes an estate tax of 11.6 percent on the amount over the exemption. That levy goes up to 12.6 percent for taxable estates valued at $10.1 million or higher.
If you still have questions or concerns about the estate tax and would like to speak with a qualified Canton estate planning attorney, contact the Law Office of Brian S. Karpe, LLC, today.