New Estate Tax Laws Could Change Your Retirement Plans

Changes to state and federal estate tax laws affect your plans for retirement and other financial plans.  It’s not easy keeping up with tax law because it is ever evolving. But you should understand the Connecticut estate tax exemption and the federal SECURE Act (aka Setting Every Community Up for Retirement Enhancement Act of 2019) These new laws could send you back to the drawing board.

New and pending tax legislative changes at the state and federal levels could have a significant effect on retirement and inheritance plans in Connecticut. At the Northeast Connecticut Law Center, we are on the lookout for tax law changes that might affect our clients. Our estate planning attorneys offer a special program called Family Care Plan, Safeguarding Tomorrow to our clients. Under this program, we provide an annual review of state and federal tax law changes so we can advise our clients on suggested changes to his or her estate plan to ensure it is on target. The goals of this annual review are to reduce the client’s tax burden and modify the asset protection plan within the estate plan to compensate for tax law changes. Not a client yet? Let’s get started! Click here Contact NECT Law. Fill out the form on our website and send it in. Or, you can also call our Putnam office at 860.928.2429.

Connecticut Lowers Cap, Extends Exemptions in New Estate Tax Laws

In 2017, Connecticut lawmakers passed a new state budget that significantly changed the state’s estate tax laws. Over the next three years, the law will gradually expand Connecticut estate and gift tax exemptions from $2 million in 2017 to $3.6 million in 2019. Starting in 2020, that exemption will match the federal estate and gift tax number, which is currently $11.2 million. This means that together, a married couple could – with the right estate plan – shield their family from paying federal estate tax on up to $22.4 million.

The annual gift exclusion in Connecticut is also increasing to $15,000 per person giving the gift or $30,000 per married couple. This increase gives extra flexibility to families hoping to dissipate assets ahead of time to avoid estate tax consequences after death. Connecticut law now also sets its estate tax at 10% for estates and gifts over $5.1 million and raises it incrementally to a maximum of 12% for estates and gifts over $10 million. However, starting in 2019, the Connecticut state budget also lowers the cap on the maximum estate and gift tax payable from $20 million to $15 million.

You May Be Able to Avoid Paying Estate Taxes by Simplifying Your Retirement Plan Now

Taken together, these new estate tax laws mean that most Connecticut residents won’t need to worry about state-level estate taxes. By 2020, the only people facing estate tax will be those whose inherited property is worth more than $11 million. This could mean your existing estate plan protects against tax consequences that will never happen. You may be able to simplify your retirement and estate plan now and still avoid paying estate taxes later.

SECURE Act Affects Retirement Payouts for Non-Spouse Beneficiaries

However, Hartford isn’t the only place where estate tax laws are changing. In Washington DC, Senators are currently considering the SECURE Act, which passed the House of Representatives on May 23, 2019. If the Senate votes yes on the SECURE Act, it could affect your retirement plan, and your family’s ability to stretch out inheritances over time.

SECURE Act Affects IRAs and Other Retirement Distributions

The SECURE Act has three main provisions:

  1. It allows older workers to continue to contribute to traditional IRAs past age 70 ½.
  2. It pushes the age for tax-free retirement distributions from 70 ½ to 72 years old.
  3. It requires non-tax heirs to withdraw retirement assets within 10 years, rather than spreading distributions out over their lifetime.

Older Workers Could Shelter More of Their Money Under the SECURE Act

The effect of these changes on your estate plan or retirement plan depends greatly on who needs the money that is held in a person’s retirement accounts, and when. For those working into old age, the SECURE Act can be an opportunity to shelter more of their money in pre-tax retirement accounts. Older workers who can wait until age 72 to retire will see a lower overall tax burden as well. However, if you are in a low-income family, suffer from health challenges that force you to retire early, or need to spread your family’s inheritance out over time, the SECURE Act could mean you will face higher estate tax and income tax consequences for dipping into your retirement account assets.

Our Estate Planning Attorneys Can Review Your Estate Plan and Bring It up to Date

All these changes mean that your estate plan may not be protecting your family’s interests any longer. You could be holding your family back from much-needed inheritance assets. You may be planning to use retirement assets that will soon come with a heavy penalty. Don’t assume that a will, trust, or estate plan put together five years ago is still right for your family. Even if nothing has changed at home, new estate tax laws could leave you or your family with less than you planned.

Our Estate Planning Attorneys Understand the Consequences of Estate Tax Law Changes

At the Northeast Connecticut Law Center, we want to help you provide for your family now and in the future. We offer our clients access to our Family Care Plan, Safeguarding Tomorrow. This program helps our clients stay on top of changing laws and life circumstances that could affect their family’s estate and inheritances. This is a membership program with many benefits. An annual review of the estate plan in view of state and federal tax law changes is just one benefit of membership.

We Can Help You Take Care of Your Family and Avoid Estate Taxes

Contact us to learn more about estate planning and keeping your plan current as your family evolves. We will help you understand what you can do to reduce you tax burden while meeting your financial goals for your family’s legacy. To get started with us, click here to Contact Us. Send in the form on our website or call our Putnam law office at 860.928.2429.

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