By Paul Czepiga
We wrote not too long ago about some Connecticut estate tax changes that occurred due to legislation passed in October 2017. That legislation tied the Connecticut gift and estate tax exemption to the federal exemption amount.
The federal exemption amount was, at the time that Connecticut tied it self to it, $5.49 million. Unexpectedly in December 2017, just two months after Connecticut’s change, as part of President Trump’s tax overhaul, the federal exemption amount suddenly increased to $11.18 million.
Connecticut did not know it was tying itself to what turned out to be a very generous exemption.
So as not to take too much of a tax hit, Connecticut passed legislation on May 31, 2018 changing its just-passed exemption amounts.
Here is the ‘old’ law that was passed in October 2017:
For a married couple the amount doubles to $22.4 million.
As a result of legislation Connecticut passed in October 2017, the Connecticut estate tax exemption WAS set to increase to
- $2.6 million in 2018
- $3.6 million in 2019
- The federal exemption amount in 2020 and thereafter (currently $11.18 million but indexed for inflation)
The new exemption
As a result of legislation Connecticut passed on May 31, 2018, the Connecticut estate tax exemption is NOW changed to the following:
$2.6 million in 2018
$3.6 million in 2019
$5.1 million in 2020
$7.1 million in 2021
$9.1 million in 2022
The federal exemption amount in 2023 and thereafter (currently $11.18 million but indexed for inflation)
Here is an overlooked fact: The federal estate tax exemption in 2026 and beyond, according to the law that was passed in December 2017 by the Federal Congress , will revert to where it is was in 2017. It will drop from roughly $11 million to roughly $5.5 million.
You get only a temporary reprieve. So, no, you can’t pull the covers over your head and go back to sleep!
And you still need to factor in that Connecticut’s estate tax exemption is tied to the federal amount, so if the federal amount decreases automatically in 2026, so too will Connecticut’s, absent some action being taken by our state legislature. So what does this all mean for you?
- You need to see your estate planning attorney to review where you stand amidst these shifting federal and state sands.
- You need to shift your focus, perhaps, to income tax issues and income tax basis planning.
- With a potentially reduced emphasis, at least for now, on estate taxes, more thoughtful planning can be devoted to how, and to whom, your assets will pass at your death.
So, there is an opportunity to perhaps simplify, refocus on non-tax issues, and shift to income tax planning. But the opportunity starts with calling your estate tax attorney. I look to hearing from you.