Do you wish to transfer your estate to the next generation? Then you must understand all the applicable taxes. Otherwise, this could result in a heavy tax burden during the transition. To guarantee you’re correctly informed and organized, turn to Nesso Tax for estate tax preparation in Meriden, CT. Our team of certified public accountants (CPAs) has years of experience, so they’re ready to help you maximize the value of your estate. We’ll provide a comprehensive, tailor-made plan to ensure you get the best possible outcome.
An Overview of Estate Taxes
Estate taxes are taxes imposed on the transfer of a decedent’s property after death. Generally, this includes all types of assets, such as real estate, personal possessions, business interests, and investments. Federal and state laws will ultimately determine whether your estate will be subject to taxation. In Connecticut, resident and nonresident estates are liable when they exceed the applicable exemption amount.
- Resident Estate: An estate of a decedent domiciled in Connecticut at the time of death
- Nonresident Estate: An estate of a decedent not domiciled in Connecticut at the time of death but who owned property located within the state
Regarding who’s responsible for paying the taxes, it’s important to know the difference between estate and inheritance taxes. The former is a tax imposed on the estate itself, and the executor is responsible for filing and paying it. On the other hand, the beneficiaries or heirs of the estate are liable for any inheritance taxes imposed on money or property received from the deceased. Fortunately, only six states currently levy an inheritance tax, and Connecticut isn’t one of them.
How Are Estate Taxes Calculated?
Different factors determine the amount of estate taxes owed, including:
- The Total Value of the Estate: Generally, when a person dies, all assets in their name become part of their taxable estate. The estate’s total value is then used to calculate the amount of tax due (if any).
- Any Deductions Taken: The Internal Revenue Code (IRC) allows several deductions for estate taxes, such as funeral costs, medical expenses, and charitable donations. These deductions can help reduce the amount of taxes due.
- The Taxable Gifts Made during the Decedent’s Lifetime: Any gifts made on or after 2005, except those already included in the estate, will increase the taxable amount.
The federal and state levies imposed on the estate are assessed on its fair market value (FMV) instead of what the deceased initially paid. The FMV is the price a willing buyer would pay for the asset in their current condition. This rule prevents taxation on peak prices that have since dropped, even if it means that any asset appreciation that happens over time will be taxed. A professional appraiser can help the executor determine the FMV of an estate’s assets.
About the Exemption Amount and What Happens if You Exceed It
The exemption amount is the maximum value of an estate that state laws won’t tax. It varies from state to state and is adjusted annually. For estates of individuals dying during 2023, the Connecticut exemption amount is $12.92 million. In other words, if the total value of an estate doesn’t exceed this amount, then no taxes are due. The state imposes a tax on the portion above it for larger estates.
In previous years, the Connecticut estate tax was progressive, meaning the higher your estate’s value, the higher your tax rate. However, in 2023, the estate exemption amount increased to match the federal exemption of $12.92 million. As a result, if you’re a Connecticut resident whose estate value exceeds this amount, you’ll owe both federal and state estate taxes. The tax rate also changed to a flat 12% on the total estate over $12.92 million. It’s important to note that the federal exemption is portable, meaning married couples can double the amount if they plan and file correctly. That isn’t the case with the Connecticut exemption.
About Estate Planning
Estate planning means organizing your finances and affairs to prepare for the future, typically in anticipation of death. It involves deciding about the preservation, management, and distribution of your assets and how to minimize taxes, where possible. Other estate planning issues include expressing your wishes for health care, guardianship of minors, and more. While some may think estate planning is only for wealthy individuals, it benefits people of all financial backgrounds.
Here are some fundamental estate planning tasks:
- Naming an executor and a successor executor;
- Creating a will that names your beneficiaries and outlines how you want your assets distributed;
- Drafting powers of attorney (POA) to authorize someone else to decide on your behalf if you become incapacitated;
- Making arrangements for the guardianship of minors;
- Setting up trusts to protect assets from taxes, creditors, and other threats;
- Creating a healthcare directive to specify your wishes regarding medical treatments;
- And more.
Planning Your Estate Taxes
When you pass away, estate planning can help reduce or even eliminate taxes on your assets. You can achieve this through careful structuring of your estate. Depending on its size and complexity, there may be several ways to minimize taxes, such as charitable giving, gifting, and trusts. You can also use certain deductions to reduce your tax liability. At Nesso Tax, our professional estate planners can educate you on these strategies and how they benefit you and your heirs.
- A-B Trusts: A key tool used to minimize estate taxes is the marital deduction trust, also known as an A-B Trust. It’s a way married couples can transfer assets between each other without incurring the federal estate tax.
- Education Funding Strategies: Certain vehicles, such as 529 plans and Coverdell accounts, can be a great way to save for your children’s college education. We’ll explain the benefits of these tax-advantaged savings opportunities.
- Cutting Tax Effects of Charitable Contributions: Charitable contributions can reduce taxes for high-income earners. By comprehending the tax implications of giving, you can maximize your donations and minimize their effect on your estate tax bill.
- Estate Freezing: An estate freeze allows you to transfer your assets while lowering their taxable value and shifting gains to the next generation. Our financial planners can help you decide if this strategy suits you.
Other Benefits of Estate Planning
Another benefit of estate planning is asset protection. When done correctly, an estate plan can protect your assets from creditors and provide a haven for them until passed on to heirs or beneficiaries. For example, trusts are excellent asset protection tools. They keep the assets separate from your own but still under your control. You’ve worked hard to build your estate, and at Nesso Tax, we believe it should stay safe and secure.
Probate is a legal process that settles the estate of a deceased and distributes it to heirs. It involves court hearings, paperwork, and fees—all of which can take months or years to complete before anyone receives anything. Not to mention, it can cause stress and unnecessary family disputes. With a well-thought-out estate plan, you can avoid probate altogether or lessen its impact on your heirs. Legal documents allow you to specify who gets what and when after you die. This way, you guarantee the fulfillment of your final wishes and save your loved ones from the hassle of probate court.
How Nesso Tax Professionals Can Help with Estate Tax Preparation in Meriden, CT
At Nesso Tax, we understand that estate taxes can be complex. We work closely with our clients to navigate the current state and federal estate tax laws and how they apply to their circumstances. Our team is well-versed in all these tax matters and estate planning documents, and they’re here to advise you on the best action course. We’ll review your financial situation and recommend the most tax-efficient strategies available.
When you first reach out to us, we’ll arrange an initial consultation where you can discuss your needs. One of our financial advisors in Meriden will review the options and determine which ones are best for you. From there, we’ll create a detailed plan that caters to your wishes and helps reduce or eliminate estate tax liabilities. Remember that we’re always available to answer your questions or adjust the plan if your circumstances change.
Why Choose the Nesso Group
Our Long-Term Vision
We’re committed to providing high-quality financial services and advice our clients can trust. Our financial planners in Meriden don’t just help you pursue your current goals. We work with you to create a long-term vision for the future and ensure it goes smoothly.
Our Holistic View of Your Taxes and Estate Planning
We understand the importance of estate planning and how it relates to your financial success. We’ll examine all angles, from tax liabilities to other aspects, such as retirement goals and investing strategies. This way, you get the most benefits out of your taxes but also build a secure future for yourself and your family.
Our Defined Goals
- Guiding your financial health and strategies
- Helping you achieve tax efficiency
- Helping you grow your wealth in a sustainable way
Start Planning Your Estate Taxes Today
Nesso Tax is the best option for estate tax preparation in Meriden, CT. We provide thorough tax services tailored to your unique requirements and objectives. To safeguard your assets and ensure your loved ones receive the care they require, we can assist you in developing a plan. Our tax specialists know the importance of estate planning, and they can walk you through the process. Whether you’re just starting, getting ready for retirement, or well into your senior years, the Nesso Group’s mission is to support you as you work toward your objectives.