Connecticut Estate Planning: Why Trusts Are Essential for Residents

Connecticut Estate Planning: Why Trusts Are Essential for Residents

Connecticut has one of the highest estate tax rates in America, making trusts a powerful tool for residents seeking to protect their assets and provide for loved ones.

Connecticut Estate Tax Reality

2025 threshold: $13.61 million (matches federal exemption)
Tax rate: Up to 12% on amounts above the threshold
Cliff effect: If your estate exceeds the exemption, the entire value above the threshold is taxed, not just the excess. This can result in a significant tax bill for estates just over the limit.

Note: The exemption amount and tax rates can change with new legislation. Always check the most current figures or consult the Connecticut Department of Revenue Services for updates.

Why Trusts Are Essential in Connecticut

• Estate tax reduction: Certain trusts can help reduce the size of your taxable estate, potentially saving your heirs significant amounts in taxes.

• Probate avoidance: Assets held in trust generally do not go through probate, which can save time, reduce costs, and keep your affairs private.

• Asset protection: Some trusts can shield family wealth from creditors, lawsuits, or spendthrift beneficiaries.

Caveat: Not all trusts provide the same benefits. The effectiveness of a trust depends on how it is structured and your specific goals. For example, revocable living trusts avoid probate but do not reduce estate taxes or protect assets from creditors.

Connecticut-Specific Trust Strategies

• Credit shelter trusts (Bypass trusts): Allow married couples to use both spouses' estate tax exemptions, potentially doubling the amount that can pass tax-free to heirs.

• QTIP trusts (Qualified Terminable Interest Property): Useful for marital deduction planning, especially in blended families. These trusts provide income to a surviving spouse while preserving the principal for children from a prior marriage.

• Irrevocable life insurance trusts (ILITs): Remove life insurance proceeds from your taxable estate, which can be especially valuable if your total assets are near or above the exemption threshold.

Caveat: Irrevocable trusts cannot be changed or revoked after creation, so careful planning is essential. Improperly structured trusts may not achieve the intended tax or asset protection benefits.

Connecticut's high estate tax rates make thoughtful trust planning essential for anyone with significant assets or family wealth to protect.

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Disclaimer: This blog post is for general informational purposes only and does not constitute legal advice. Estate planning outcomes can vary widely based on your personal circumstances and the evidence or documents available. Always review your options carefully and consider seeking professional input for your specific situation.