Testators creating estate plans frequently want to provide as much as they can for their beneficiaries. They create plans that allow them to maximize what their loved ones eventually inherit.
Estate plans generally need to address liabilities, including personal debts. Testators also need to consider the taxes that their estate may be responsible to pay. The best estate plans include terms that acknowledge the risk of taxes and help minimize the obligations of the estate and the beneficiaries inheriting from it.
What taxes may be a concern?
Large estates sometimes owe estate taxes
Both Connecticut and New York have state-level estate taxes. In Connecticut, the estate tax exemption threshold mirrors the federal exemption, which is $13.99 million in 2025.
In New York, the state estate tax threshold is lower. An estate worth $7.16 million or more may be subject to state estate taxes. Neither New York nor Connecticut currently collects inheritance taxes from beneficiaries. Instead, the personal representative of the estate must cover estate taxes.
Prior planning can help reduce estate tax obligations. Creating trusts, taking on co-owners and arranging for direct transfers outside of the probate process are all strategies for reducing estate tax obligations.
Those who can decrease the value of an estate to less than the exemption threshold can completely avoid estate taxes. Those who diminish the value of the estate can reduce the tax rate that applies.
Income and capital gains taxes could apply
Testators may need to earmark funds to ensure that their estate has the resources to fulfill any outstanding income tax obligations they personally owe when they die. They may also need to address the possibility of asset liquidation during the probate process. The sale of estate resources, possibly due to their instructions to hold an estate sale, might result in the estate owing income tax.
If beneficiaries intend to sell high-value assets that have appreciated in value, such as real property or business holdings, they may owe capital gains taxes. Estate planning moves, such as holding certain assets in trusts, can potentially help reduce the risk of taxes imposed due to the sale of assets.
The nature of the property owned by a testator and the plans they have for their legacy can influence the best strategy for minimizing tax obligations. Reviewing current documents and overall intentions with an estate planning attorney can help people reduce how much of their legacy goes toward taxes instead of their selected beneficiaries.
