Parents' Estate ~$13M — Should We Be Worried About Federal Estate Tax?

My parents are both in their mid-70s and their combined estate is roughly $13 million. Breakdown: house in Connecticut worth ~$2.5M, investment accounts ~$6M, rental property in Florida ~$3M, life insurance ~$1.5M. Dad also has a small pension.

They've done basically zero estate planning beyond simple wills. Mom mentioned "the exemption covers everything" but I keep reading about the TCJA sunset and that the exemption might get cut in half. If it drops to ~$7M per person, are we looking at a massive tax bill?

Also — they live in Connecticut which I believe has its own estate tax? Does that stack on top of the federal?

Any guidance on where to even start? They're resistant to "complicated trusts" but I want to at least understand the exposure.

Good news: at $13M combined with both parents alive, you're currently under the $27.98M married exemption. No federal estate tax today.

The risk scenario: If the TCJA sunsets after 2025 (there's political uncertainty here), the exemption reverts to roughly $7M per person. At that point a $13M estate with one parent deceased could face federal exposure. But the IRS has confirmed a "no clawback" rule — any gifts made under the higher exemption are grandfathered.

Connecticut does have its own estate tax with a $13.61M exemption (2025) and rates from 11.6% to 12%. So you could face state-level exposure there too.

Life insurance is the hidden bomb here. That $1.5M policy is included in the taxable estate if your parent owns it. An Irrevocable Life Insurance Trust (ILIT) removes it from the estate. That alone could save $600K+ in taxes.

Start with: (1) ILIT for the life insurance, (2) portability election planning, (3) annual exclusion gifting program. These are not "complicated trusts" — they're standard moves.

+1 on the ILIT point. That's literally the first thing any estate attorney will suggest.

Also want to flag: that Florida rental property. If your parents ever considered establishing Florida domicile, there's no state estate tax there at all. Connecticut's tax is real money at these levels. I've seen families save $500K-$1M just by changing domicile from a high-tax state to Florida.

There's a solid Florida estate tax guide that covers the domicile requirements — it's not just about buying property there, you need to actually change voter registration, driver's license, etc.

Interesting about Florida domicile. They spend about 5 months a year there already. But I think Mom is emotionally attached to the Connecticut house.

The ILIT — is there a downside? Does Dad lose control of the policy?

Yes, that's the tradeoff. With an ILIT, your parents transfer ownership of the policy to the trust. They can't change beneficiaries or borrow against it anymore. The trustee (usually a trusted family member or professional) manages it.

Important: there's a 3-year lookback rule. If your parent transfers an existing policy and dies within 3 years, it's pulled back into the estate. So the sooner the better. Alternatively, the ILIT can purchase a new policy directly — no lookback issue.

At their ages (mid-70s), getting a new policy may be expensive or difficult depending on health. Worth getting quotes now.

Just want to add a point about portability that often gets missed. If the first parent passes and you DON'T file Form 706 (estate tax return) within the deadline, you lose the deceased spouse's unused exemption. Forever.

Even if no tax is owed, file the 706. I've seen families lose $14M in exemption because nobody told them to file. The IRS gave a 5-year extension window a while back but it's not guaranteed forever.

We were in almost the exact same boat. Parents had about $11M, split between Massachusetts and Florida. The MA estate tax was the killer — they tax everything above $1M and there's no portability at the state level.

Long story short: they moved domicile to Florida, sold the MA house, and set up a credit shelter trust. Saved about $900K in projected MA estate tax alone. The Massachusetts estate tax page on this site actually explains the cliff issue really well.

One thing nobody's mentioned: the annual exclusion gifts. Your parents can each give $19,000 per recipient per year (2025 number) without touching their lifetime exemption. If they have 3 kids and 6 grandkids, that's $342,000/year they can move out of the estate tax-free.

Over 5 years that's $1.7M removed from the estate. Simple, no trusts required, no legal fees. Just write checks. You can also pay tuition or medical expenses directly — those don't even count against the annual exclusion.

This is incredibly helpful. I had no idea about the direct tuition/medical payment exception. My niece starts college next year — that could be meaningful.

I'm now building a case to present to my parents. I think starting with the ILIT + annual gifting + 706 filing plan is the most palatable approach for them. The Florida domicile is a longer conversation.

Great thread. Pinning the Estate & Gift Tax Hub as a resource — it has calculators and state-by-state breakdowns that are relevant to this discussion.

Following this thread because my in-laws have a similar situation (~$9M but in New York, which also has its own estate tax). Anyone dealt with NY's "cliff" where if you're over 105% of the exemption, you lose the entire exemption? That seems insane.

Yes, New York's cliff is real and brutal. The 2025 exemption is $6.94M. If your estate is even $1 over 105% of that ($7.287M), you pay tax on the entire estate from dollar one. That can mean $400K+ in tax from being $1 over the line.

The fix is aggressive lifetime gifting to get under the threshold. NY doesn't have a gift tax (unlike CT and MN), so you can gift freely. Just watch the 3-year clawback for gifts made within 3 years of death.

There's a detailed breakdown at the New York estate tax guide if you want the full picture with the cliff math.

Update: Finally got my parents to meet with an estate attorney. They're setting up the ILIT for the life insurance policy and starting annual gifting to the grandkids. Attorney also recommended a credit shelter trust for when the first parent passes. Total planning cost was around $8K which felt steep but apparently could save $500K-1M in taxes. Thanks everyone for the push.