The Impact of Property Appreciation on Your Estate Plan
A strong housing market is great news for homeowners but rising property values can also create potential estate tax concerns for individuals and families across Connecticut. As your assets grow in value, your estate could exceed exemption thresholds and become subject to federal and state estate taxes.
Proper planning now can help reduce tax exposure later, especially as federal estate tax laws are set to change in the coming years.
Federal Estate Tax Overview
At the federal level, the IRS allows a certain amount of your estate to pass tax-free to beneficiaries. This is known as the estate tax exclusion. As of 2024, that threshold is $13.61 million per person.
This exclusion was expanded by the Tax Cuts and Jobs Act in 2017 and is adjusted annually for inflation. However, unless Congress extends the current limits, the exclusion is set to drop significantly at the end of 2025 likely returning to around $5.49 million (plus inflation) in 2026.
That change could affect many more families than you might expect, particularly those who own high-value homes, investment properties, or family businesses.
Estate Planning for Married Couples
Married couples benefit from two key planning advantages:
Unlimited Transfers: U.S. citizens can transfer any amount of assets to a spouse without triggering estate tax.
Portability: A surviving spouse can use the unused portion of their deceased spouse’s exemption, effectively doubling the amount they can pass tax-free.
Together, this allows couples to shelter up to $27.22 million in 2024 at least until the exemption resets in 2026.
Understanding the Gift Tax
While gifting assets during your lifetime can reduce the size of your estate, it’s important to know how gift tax rules apply.
The federal gift and estate tax systems are unified, meaning they share the same lifetime exemption. However, you can also give up to $18,000 per person, per year without it counting toward your lifetime limit.
Other tax-free gifts include:
Tuition payments made directly to educational institutions
Medical bills paid directly to providers
These exclusions offer useful planning tools for reducing the size of your taxable estate.
Estate Taxes in Connecticut
In addition to federal estate tax, Connecticut imposes its own estate tax, which currently mirrors the federal exclusion of $13.61 million. Connecticut also has a state-level gift tax, making it one of the few states with both.
With real estate values climbing in areas like Fairfield County, residents should be aware that the upcoming federal exemption rollback could mean more estates fall within taxable range, even if they aren’t considered “ultra-wealthy.”
Planning Ahead: How to Reduce Estate Tax Exposure
If you’re concerned your estate could face tax liability, consider taking steps now to shift or shelter high-value assets. Some effective options include:
Irrevocable trusts can remove assets from your taxable estate. These trusts are especially helpful for life insurance policies, investment portfolios, or gifts made in advance.
2. Qualified Personal Residence Trust (QPRT)
For homeowners, a QPRT allows you to transfer your home to a trust while retaining the right to live in it for a set number of years. The longer the retained interest, the lower the value of the taxable gift because the IRS calculates it based on the home’s current value and the retained term, not its projected future worth.
Once the term ends, the home passes to your beneficiaries outside your estate, potentially saving significant tax dollars.
At Harper Law in Milford, CT, we help individuals and families think through estate tax considerations and explore strategies that protect what they’ve worked hard to build.
Contact us today to schedule a consultation and begin planning with confidence.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Please consult an attorney for specific legal guidance.