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February 2, 2015 Experts Corner

Time for an estate planning checkup

Brett McGrath
By Brett McGrath

Just as we should all be going to our family doctors as we get older to make sure we are healthy and in good physical condition, everyone should also periodically have a financial checkup, including a review of your estate plan and your estate planning documents, including wills and trusts.

As a result of recent changes to the federal estate tax, as well as many state estate taxes, the urgency to review your will is at an all-time high.

Currently there are 19 states, including Connecticut, plus the District of Columbia that have estate taxes.

Eight states are ushering in changes in 2015, such as lessening the death tax bite by increasing the amount exempt from the tax, or indexing the exemption amount for inflation.

An estate plan review may be needed as a result of any one of the following reasons:

• Change in marital status, births, adoptions, or deaths of family members, beneficiaries and fiduciaries.

• Change in residence or domicile (i.e., moved to a state where there is no estate tax).

• Changes in the nature or extent of your assets, investments and business interests.

• Reevaluation of the nomination of executors, trustees and guardians.

• Revisions of tax laws and other laws relating to wills, trusts and estates, which may affect existing estate plans.

In 2012, the federal estate tax exemption of $5 million per person (indexed for inflation) was made permanent.

In addition, the concept known as portability is now permanent.

Portability allows a surviving spouse to use a deceased spouse's unused estate tax exclusion.

For 2015, it appears as though the federal estate tax exemption will be $5.43 million per person, or $10.86 million per couple, up from $5.34 million per person and $10.68 million per couple in 2014.

A 40 percent estate tax rate is applied to any excess over the exemption amount. By contrast, states with estate taxes typically exempt far less per estate.

For example, Connecticut imposes a top tax rate of 12 percent on estates in excess of $2 million.

As in the federal system, bequests to a spouse are estate tax-free.

For tax purposes, gross estate includes all assets whether or not they go through probate.

That means assets held in a revocable living trust are counted as part of the estate.

The gross estate incudes: real estate (in Connecticut or elsewhere); bank accounts and CD's; investment accounts and securities; vehicles and other personal property held in the state; proceeds from life insurance policies unless the ownership of these policies was previously transferred; retirement plan funds; business interests; and other assets

Since many wills and revocable trusts have bequests that are tied to the federal or state estate tax exemption amount, it is important to review these documents to make sure that they maximize the tax benefits available while also benefiting your family in the manner you desired and planned for.

It is possible that a well- prepared plan drafted several years ago may result in a state estate tax being due upon the death of the first spouse, even though this was never the intended or planned result.

This issue, if it exists, can be avoided by proper planning now.

Brett McGrath is the partner-in-charge of tax and business services at accounting and advisory firm Marcum LLP's Hartford office.

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