Estate, Trust & Gift Taxation

Estate tax attorneys play a critical role in navigating the complexities of estate, trust, and gift taxes. 

At Cohen Law, PLLC we provide guidance to help individuals and families minimize tax liabilities, maximize exemptions, and employ effective strategies such as trusts, charitable donations, and gifting plans. Our deep understanding of evolving tax laws ensures our clients can make well-informed decisions, preserve wealth for beneficiaries, and achieve their long-term financial goals while complying with legal requirements.

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The importance of estate tax attorneys in Connecticut

Estate tax is a tax levied on the transfer of a person’s assets after their death. It is crucial to consider the following aspects related to Federal and Connecticut estate tax law:

  • Estate Tax Exemption: Understand the current estate tax exemption limit set by the government. This is the threshold value up to which an estate can pass tax-free to heirs. Any amount beyond this limit may be subject to estate tax. The exemption limit may change over time due to legislative changes.
  • Tax Rate: Be aware of the estate tax rate that applies to the portion of the estate exceeding the exemption threshold. This rate can also change depending on tax laws.
  • Tax Planning: Engage in estate tax planning to minimize the potential tax burden. Various strategies, such as setting up trusts or making charitable donations, can help reduce estate tax liability.
  • Portability: For married couples, portability allows the surviving spouse to use any unused portion of the deceased spouse’s federal estate tax exemption. Understanding and utilizing portability can help maximize tax benefits.
  • Valuation of Assets: Properly value the assets in the estate to determine the estate’s overall worth. Valuation errors can lead to disputes with tax authorities.
  • Irrevocable Life Insurance Trust (ILIT): Consider creating an ILIT to exclude life insurance proceeds from the taxable estate.

Federal and Connecticut Taxation of Trusts: 

Trusts are separate legal entities and may be subject to income tax or other taxes depending on the type of trust:

  • Revocable Living Trust: During the grantor’s lifetime, a revocable living trust is typically treated as part of the grantor’s assets  for tax purposes. Income generated by the trust is usually reported on the grantor’s personal income tax return.
  • Irrevocable Trust: Irrevocable trusts can be  taxed as separate entities. They typically have their own Tax Identification Number (TIN) and can be subject to income tax on any income generated by the trust. Understanding the tax implications of the trust is vital when distributing income or principal to beneficiaries.
  • Charitable Trust: Charitable trusts can provide tax advantages, as contributions to the trust may be tax-deductible, and the trust’s income may be tax-exempt if it meets the necessary criteria.
  • Generation-Skipping Trust: This type of trust can help avoid generation-skipping transfer taxes when transferring assets to beneficiaries who are two or more generations younger than the grantor.

Our considerations with tax laws on gifts

Gift tax is applied to the transfer of property or assets from one person to another without any consideration in return. Some considerations regarding gift tax include:

  • Gift Tax Exemption: Understand the current gift tax exemption limit, which is the maximum amount an individual can gift without incurring gift tax.
  • Annual Exclusion: There is an annual gift tax exclusion that allows you to gift up to a certain amount per recipient each year without it counting towards your lifetime gift tax exemption.
  • Lifetime Gift Tax Exemption: In addition to the annual exclusion, individuals have a lifetime gift tax exemption that can be used to offset taxable gifts beyond the annual exclusion amount.
  • Gift Splitting: Married couples can effectively double the annual exclusion by “gift splitting,” where one spouse gives a gift and elects to treat it as if both contributed equally.
  • Direct Payments: Certain payments, such as medical and educational expenses made directly to the provider, may be excluded from gift tax.
  • Gift vs. Inheritance: Be mindful of the difference between gifts and inheritances, as they may have different tax implications for the recipient.

It’s essential to work with a qualified tax and estate planning attorney to ensure that you comply with relevant tax laws and make informed decisions regarding your legacy.