Estate Tax

Estate Tax: One Less Thing to Worry About

When I started practicing in 1997, the estate tax exemption was $600,000 and the top estate tax rate was a whopping 55%. This meant that there was a considerable estate tax to pay if you died with an estate larger than $600,000. That sounds like a lot, but remember that the value of your estate includes real estate and life insurance proceeds. So it was relatively common for estates to trigger the tax back then, which prompted some fancy footwork with my clients’ estate planning prior to death in order to mitigate the tax bite.

Well, times have changed.

The federal estate tax exemption is now a jaw-dropping $11.4 million and the top tax rate is down to 40%! And even if you are in the tiny percentage of the U.S. population that actually exceeds that figure, they only tax the dollars above that $11.4 million threshold.

Additionally, if you are a married couple you can take advantage of an estate tax concept called “portability”, which allows your surviving spouse to use any unused portion of your exemption. For example, if a husband dies with a $3 million estate, then he did not use $8.4 million of his exemption. That unused exemption can be shifted over to his spouse, and now she can pass away with an estate as large as $19.8 million with no estate tax liability. Put another way, a married couple essentially enjoys a $22.8 million estate tax exemption!

Now, of course, Connecticut has its own state estate tax. The Connecticut exemption isn’t quite as generous as the federal exemption, but it still ain’t bad. The exemption is $3.6 million this year, $5.1 million in 2020, $7.1 million in 2021, $9.1 million in 2022, and then it catches up with the federal exemption in 2023.

All of this means that virtually none of my clients are doing estate tax planning anymore. Instead, they’re focused mostly on minimizing probate exposure and generally making sure things go smoothly for their loved ones if they pass away.

There are plenty of things to fret over these days, but having your estate decimated by a huge estate tax is, thankfully, no longer one of them.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.