Hartford Business Journal

10 Hartford Business Journal • February 11, 2019 • www.HartfordBusiness.com EXPERTS CORNER Estate planning for the wealthy — How to do it right By Joel Johnson U nderstandably, people of higher net worth put a great deal of thought into how their investments are managed. It's one of the reasons they have such high net worth — they have earned a significant amount of money, and they want to see that money work for them in the best possible way. They want growth maximized and losses mini- mized, and the result is a more robust portfolio that allows them to get even more enjoyment out of life. But what about their estates? What about the money and assets that, obviously, they will not be able to enjoy after they pass on? How can they ensure that these assets are well-managed and con- trolled, and their heirs are cared for and looked after? This is a discussion many may not want to have — after all, who wants to think about their death? — but is still an essential one. The bottom line is this: Wealthy people can control what happens to their estates even after they die. And that is a good thing. It all begins with asking some basic questions. How do you want to control your money once you are no longer able to manage your affairs, or once you die? How do you minimize your tax burden so those inheriting your estate achieve the maximum benefit? It starts with a healthy understand- ing of gifting strategies, things you can do while you're still in control. There is a basic level of gifting allowed annually ($15,000 per person, given to as many people as desired, for both a husband and wife), but there are opportunities well be- yond that for wealthy people to employ. There are charitable trusts that can be created (either charitable lead trusts or charitable remainder trusts), which give parents or grandparents the ability to move assets out of the estate, to satisfy FOCUS: Wealth Management By Joe Cooper jcooper@hartfordbusiness.com A s Baby Boomers retire in droves and reach the end of their lives over the next half-century, a record amount of wealth is expected to change hands in the United States. In fact, more than $58.1 trillion in the U.S. is estimated to transfer from those born between the mid-1940s and 1960s to their children, according to a recent report by global accounting and consulting firm Deloitte. Local wealth management execu- tives say their firms have been seeing this trend firsthand for much of the last decade, as more older clients gift or transfer assets to their children and become less hesitant to begin estate or succession planning. The largest transfer of wealth in U.S. history presents challenges to Con- necticut, which must work to keep in-state as much money as possible. That means not driving out the state's wealthiest residents, who generate significant tax revenues for the cash- strapped government. That has put one tax in particular under the spotlight in recent years: Connecticut's estate and gift levy, which has been thought of as one of several factors that pushes older resi- dents to flee the state. But the good news for those who think the so-called "death tax" is hurt- ing the state's competitiveness is that it will soon be impacting far fewer people. That's largely due to an underpub- licized policy change adopted in 2017 that tied the state's estate and gift tax exemption level to the federal thresh- old, which was originally projected to more than double Connecticut's exemption from $2.6 million in 2018 to $5.1 million by 2020. Unexpectedly, however, two months after Connecticut's policy change, Presi- dent Donald Trump's 2017 federal tax re- form law more than doubled the federal estate tax exemption to $11.2 million. Connecticut is now in the first year of a six-year phase in to meet that new federal exemp- tion level — es- sentially making the state's death tax relevant to only a handful of wealthy resi- dents. The change, which officials say was made to keep Connecticut competitive with other states, will also mean the General Assembly loses out on tens of millions of dollars in tax revenues in each of the coming years, as the budget continues to face multibillion-dollar deficits. Meantime, there is also a proposal in the General Assembly to eliminate the estate and gift tax entirely. "The general public is probably not tuned into it," said Alan Clavette, a CPA and managing member of Newtown- based accounting firm Clavette & Co., regarding the lack of public awareness surrounding the state's soaring estate tax exemption. "I don't think people are focused on that piece at all." Clavette, a member and former chair of the Connecticut Society of Certified Public Accountants, says Trump's tax re- form law will continue raising the federal estate tax exemption through fiscal 2025, until it's set to fall back down to $5.4 million (adjusted for inflation) in 2026. Connecticut taxpayers, he says, should expect the state's threshold to follow suit. "There's a lot of concern about what happens at that point … " he says. Who's impacted? The state's new exemption level, adjusted for inflation, will rise to $5.1 million in 2020. That means estates worth less than that will no longer be impacted by the estate and gift tax. The exemption level then rises to $7.1 million in 2021; $9.1 million in 2022; and $11.2 million in 2023, according to state law. Also, the new law lowers the lifetime cap on the maximum estate and gift tax payable from $20 million to $15 million in 2019. The impact will be significant for the Asset Transfer Quietly, CT makes derided 'death' tax friendlier to state's wealthiest residents Joel Johnson Continued on page 13 >> Continued on page 12 >> IMAGE | THEADESIGN, SHUTTERSTOCK.COM Alan Clavette, CPA and Managing Member, Clavette & Co. Connecticut estate and gift tax revenues Revenue Fiscal Year (in millions) 2010 $177.6 2011 $237.6 2012 $191.7 2013 $439.5 2014 $168.1 2015 $176.7 2016 $221.8 2017 $218.7 2018 $223.8 2019* $196.2 2020* $155.8 2021* $134.2 2022* $126 * Revenues from FY 2019-22 are projected and take into account the state's rising death tax exemption level. Source: State Office of Policy and Management

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