BARRY D.HOROWITZ Connecticut Estate Planning Attorney

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1 WILL MY HEIRS BE FORCED TO PAY AN INHERITANCE TAX IN CONNECTICUT? There are some misconceptions that arise with regard to taxation as it applies to estate planning. Many people think that an inheritance tax and an estate tax are identical forms of taxation, but in reality, this is not the case. BARRY D.HOROWITZ Connecticut Estate Planning Attorney Will My Heirs Be Forced to Pay an Inheritance Tax in Connecticut? 1

2 We practice law in Hartford, Connecticut. First we will look at some details about inheritance taxes, then we will go on to examine the estate taxes that you may face as a citizen of the state of Connecticut. INHERITANCE TAXES An inheritance tax is a tax that would be levied on distributions to every inheritor who is not exempt from the tax. In other words, there could be multiple impositions of an inheritance tax when one estate is being distributed among the heirs. Will My Heirs Be Forced to Pay an Inheritance Tax in Connecticut? 2

3 This sounds like pretty bad news, but there is a bright side. There is no federal inheritance tax, so this is not a factor when you are planning your estate. The states have the ability to impose state-level inheritance taxes, but most states are not exercising this option. Only six states in the union have statelevel inheritance taxes, and fortunately, Connecticut is not among them. The states with state-level inheritance taxes are New Jersey, Pennsylvania, Maryland, Nebraska, Iowa, and Kentucky. What Questions Should I Ask an Elder Law Attorney in Connecticut? 3

4 In most of those states, close relatives are exempt, so the inheritance tax would not be imposed on transfers to children and spouses in many instances. It is also possible to delay the submission of your application beyond your full retirement age. If you do this, you earn delayed retirement credits. This would equate to an eight percent increase in your benefit for each year that you delay, but this accrual ceases when you reach the age of 70. ESTATE TAXES Now we can move on to taxes that can be relevant when you are planning your estate as a Connecticut resident. There is a federal estate tax in place that everyone in all 50 states should be concerned about. This tax carries a 40 percent maximum rate, and this is a big chunk to take out of your financial legacy. The tax does not apply at all on transfers between spouses, as long as the spouses are What Questions Should I Ask an Elder Law Attorney in Connecticut? 4

5 American citizens. Transfers to others, even your children, are potentially taxable, but there is a credit or exclusion. This is the amount that you can transfer before the estate tax would be applied. Each year this figure is adjusted to account for inflation, so you may see a somewhat different number in 2016, but for the rest of this year, the federal estate tax exclusion is $5.43 million.we should touch upon the matter of portability. The estate tax exclusion was made portable between spouses for the 2011 calendar year, and portability was made permanent after the enactment of the American Taxpayer Relief Act of This means that a surviving spouse could use the exclusion that his or her deceased spouse was entitled to utilize. Using the $5.43 million exclusion that we have this year, a total exclusion of $10.86 million would be available to a surviving spouse. Connecticut residents get a break when it comes to an inheritance tax, but there is a state-level estate tax in our state. The exclusion is lower than the federal exclusion, so you cannot necessarily breathe a sigh of relief if your What Questions Should I Ask an Elder Law Attorney in Connecticut? 5

6 assets do not exceed $5.43 million in value. The Connecticut state estate tax exclusion sits at $2 million in 2015, and the top rate of the tax is 12 percent. On the state level, there is also an unlimited marital deduction, so you can transfer any amount of money and/or property to your spouse without worrying about any Connecticut state estate tax exposure. SUMMARY Your heirs will not be forced to pay an inheritance tax if you are a resident of the state of Connecticut. There is no federal inheritance tax, and there is What Questions Should I Ask an Elder Law Attorney in Connecticut? 6

7 no inheritance tax on the state level in Connecticut, though six states in the union do levy state-level inheritance taxes. Estate taxes could be a factor for you if you have been able to accumulate a significant store of wealth. The federal estate tax is potentially applicable on transfers that exceed $5.43 million, and the Connecticut estate tax can be applied to transfers that are in excess of $2 million. There are legal steps that can be taken to mitigate your exposure if your estate is going to be subject to death taxes. You can discuss estate tax efficiency strategies with a licensed estate planning attorney, and they often offer free initial consultations. REFERENCES State of New Jersey Treasury Department IRS Employed/Estate-and-Gift-Taxes Nolo What Questions Should I Ask an Elder Law Attorney in Connecticut? 7

8 About the Author Barry D. Horowitz Barry D. Horowitz is a founding partner in the law firm of Nirenstein, Horowitz & Associates, P.C. He received his diploma from the Loomis Chaffee School and his Bachelor of Arts from Bennington College, where he dual majored in philosophy and music. Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award. After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award. Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court. He is a member of the Hartford County Bar Association, a charter member of the American Academy of Estate Planning Attorneys, and has recently received the American Academy Award. Mr. Horowitz is also an active member of the Connecticut Bar Association where he is a member of the Elder Law Section, the Estate Planning and Probate Section, and the Professional Ethics Committee. Mr. Horowitz practices exclusively in the area of Estate Planning where he has earned a reputation as a dynamic and entertaining speaker. He also has recently published a book entitled Guiding Those Left Behind in Connecticut. Nirenstein, Horowitz & Associates, PC Living Trust and Estate Planning Attorneys Serving the State of Connecticut with Offices in Greater Hartford, Fairfield County, CT HARTFORD WESTPORT Gothic Park 191 Post Road West 43 Woodland St., Suite 520 Westport, CT Hartford, CT Phone: Phone: (860) What Questions Should I Ask an Elder Law Attorney in Connecticut? 8