It has long been argued that one reason the State of Connecticut is losing some of its wealthier residents is its insistence on retaining its estate tax while other states have eliminated theirs. The prospect of paying a significant tax on assets being transferred to one’s heirs has seemingly been an impetus for individuals to move to states such as Florida and South Carolina which do not impose such a tax (although the warmer weather makes the ultimate decision to move even easier!).
The new budget recently signed into law by Governor Dannel P. Malloy begins to address the Connecticut estate tax issue by raising the individual estate tax exemption from its current level of $2 million to $2.6 million in 2018, then to $3.6 million in 2019, and finally to an amount equivalent to the federal estate and gift tax exemption in 2020. The current federal estate and gift tax exemption stands at $5.49 million and is adjusted for inflation each year. In 2018, the federal exemption will increase to $5.6 million.
In addition to the increase in the state and federal estate tax exemptions that will occur on January 1, 2018, there will also be an increase in the annual gift tax exclusion from $14,000 to $15,000. Thus, an individual can make gifts up to $15,000 to as many individuals as he or she wishes and not incur any gift tax liability. In addition, joint gifts from spouses to individuals up to $30,000 will escape any and all gift tax liability. Gifts between spouses, as well as gifts for education and medical expenses (if paid directly to the educational institution or medical provider), are totally exempt from gift tax liability.
Finally, the tax reform proposal advanced by the White House calls for a total repeal of the federal estate tax. If such a repeal is ultimately signed into law by Congress then presumably Connecticut’s estate tax will totally disappear in 2020 since the current budget calls for the Connecticut estate tax exemption to match the federal estate tax exemption in that year. It will be very interesting to see how tax reform progresses on the federal level and how it will ultimately affect Connecticut’s estate tax issue. Stay tuned!
If you are interested in discussing your own estate plan and how the new federal and state estate tax landscape affects you and your heirs, please contact your Essex Trust professionals at (860)767-4416.