The federal estate tax exemption for the 2015 tax year is $5,430,000. If a decedent's taxable estate (assets owned at death plus lifetime taxable gifts) exceeds this amount, the excess will be taxed at a flat rate of 40%.
For married couples the exemption can total $10,860,000 in 2015, because the option of "portability" can be used at the first death to transfer any unused portion of the deceased spouse's exemption to the surviving spouse. The opportunity to use portability arises when the estate of the spouse who dies first is smaller than the exemption, or assets pass tax-free to the surviving spouse through the marital deduction. Portability can only be elected on a federal estate tax return filed on time for the spouse who dies first.
Connecticut Estate Tax
There are no changes to the Connecticut estate tax exemption, which is $2,000,000. If a decedent's taxable estate exceeds $2,000,000, the excess is taxed at marginal rates between 7.2% and 12%.
The Connecticut taxable estate is composed of lifetime taxable gifts made after 2004 plus assets owned at death. Qualified transfers to a spouse or to charity are not taxable. Connecticut does not offer the portability option. Note: the Connecticut estate tax is deductible for federal estate tax purposes.
For 2015, the federal and Connecticut gift tax annual exclusions remain unchanged at $14,000 per recipient. One spouse may give up to $28,000 to each recipient if the other spouse consents to "split gifts" on a gift tax return.
For 2015, gifts that exceed the annual exclusion incur no federal gift tax until cumulative excess gifts reach the federal lifetime exemption of $5,430,000, but these gifts also require a gift tax return to be filed. The lifetime exemption for Connecticut gift tax purposes is $2,000,000, but only gifts made after 2004 count toward that exemption.
Certain gifts avoid tax without using the annual exclusion or the lifetime exemption. Nontaxable gifts include tuition payments made directly to qualifying educational institutions and medical payments made directly to healthcare providers.
This article is presented by the Individual Client Services Practice Area at Reid and Riege, P.C., a full service law firm providing legal counsel and representation to many of the region's leading business and nonprofit organizations, financial institutions, corporations and individuals. For information, or to discuss these matters in greater detail, please contact John R. Ivimey, a member of the Individual Client Services Practice Area, at 860. 240.1062 or firstname.lastname@example.org.
This article has been prepared for the general information of readers and is intended to be for discussion purposes only. It is not intended and should not be construed to provide any legal advice.