From Letters to My Clients: Estate Taxes, Part 2
Updated: Apr 15, 2018
You have asked what taxes would be owed, should you die tomorrow with your current estate plan in place. Based upon my review of your documents, under the current Connecticut state estate tax exemption of $2.6 million per person, your estate, with net assets valuing nearly $5 million, would be exposed to tax liability. This could be remedied fairly easily, but requires some explanation, as explained in the previous blog.
If you execute a new estate plan based on Connecticut law that makes use of the tax-favored treatment of marital property, you will be able to ensure that your estate will owe no estate taxes. In your case, distributions to your adult children (and/or their descendants) and your wife could be held in the credit shelter portion (funded with up to $2.6 million, the current Connecticut lifetime exemption). The remainder above the then-applicable exemption amount would go to the marital trust for your wife. Accordingly, no estate taxes would be owed.
This marital trust is a popular vehicle for blended families like yours in which both spouses have children from previous marriages. The Trustee would pay for your wife's health, education, maintenance and support. Your wife could be granted a limited power to appoint the balance remaining to a defined class of beneficiaries, including one of your choosing.
This means you could maintain, at least, roughly, the distribution plan you now have in place, ensure that no estate taxes will be owed, and ensure that everything that does not pass to your wife will pass to your children.