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What is Estate Tax?

What is the biggest misconception of filing an Estate tax form with the probate court? There are two main questions: What is an estate tax, and who pays that bill?

The majority of people filing an estate tax return with the probate court are doing so without an attorney and don’t know where the money to pay that bill is going to come from. The bill is a tax against the estate and in a perfect world the payment should come from the assets of the estate and not out of the pocket of the deceased loved ones family.

There are many ways that the state tries to help with the reduction of probate fees from an estate tax return. Whether it be a way to help make and estate not taxable, or help to make the probate fee a little less.  For instance, any out of state real estate is not subject to the Connecticut estate tax. If your spouse passes away, the bill is reduced by 50% if those assets are passing to the living spouse. If the deceased person has an unpaid mortgage or a “house under water” that amount can be calculated out as a reduction from the gross estate amount. A marital deduction can also be taken out of the gross estate along with a long list of other fees and deductions that are all listed on the instruction sheet for the estate tax return.

One big issue that commonly arises is that someone will think, I don’t have to file anything with the probate court because my spouse passed away and both our names are on the house so it just passes to me. That is incorrect! If you own a house jointly with your spouse and your spouse passes away, that house does not then just become yours. The house will remain in both of your names until someone petitions the probate court to remove the deceased persons name from the house. How is that done? By simply filing an estate tax return form with the probate court. By doing so you then receive a release of lien from the property that needs to be recorded on the land records that will then remove the deceased persons name from the home. Unfortunately, it does not happen automaticall or texty and so many people assume that it does therefore causing tremendous issues when the home is being sold and there is not a clean title.

In Connecticut as of this year, 2020, the Connecticut exemption for a taxable estate is currently 5.1 million dollars. That seems like a big number. Well it is! What does that mean? It means that any person dying in the year of 2020 with an estate of 5.1 million dollars or more, is subject to federal estate tax. That does not mean that if a person dies with less than that, that they are not subject to a probate fee based on the size of their estate. Every person dying in the state of Connecticut is required to file an estate tax return and are subject to probate court fees.

The threshold for a taxable estate has tremendously increased over the past few years and is projected to increase even more. From 2011 to 2017 the threshold was at stand still of 2 million. In 2018 it jumped to 2.6 million, 2019 to 3.6 million and currently this year 5.1 million. It is projected to raise to 7.1 million next year and 9.1 million the year after that. Now what does that means for the revenue of the state of Connecticut? I guess we’ll just have to wait and see.

SOURCE: Researched and Written by Christina Bianchi