How does the Connecticut Estate Tax Work? (and a little bit about the new Federal Estate Tax Law)

Most people have an attorney create a will, or a revocable living trust, or another estate planning document such as a power of attorney, a living will, etc. for non-tax reasons. That being said, taxes affect us all in one way or another and for some clients estate taxes are a big concern when they are creating their estate plan. Recently, there were some pretty big Federal tax law changes. For your reference, I have summarized some of the important aspects of the new Federal Law affecting the Federal Estate Tax below (note - these numbers have been updated in a January 2013 post - see below for link):

Federal Estate Tax in 2012 (UPDATED TO REFLECT 2012 ADJUSTMENT IN EXEMPTION - EDIT: For 2013 Estate Tax Changes click here)

  • $5,120,000 exemption - If you die in 2012 with less than a $5,120,000 estate after adding the amount of your total lifetime taxable gifts to your taxable estate you will not be subject to Federal estate tax.
  • 35% tax rate on amounts over the exemption.
  • Portability - Your unused exemption may be transferred to your spouse upon your death (subject to limitations which should be discussed with an estate planning attorney).
  • Estate/Gift/Generation-Skipping Tax exemptions are currently EQUAL.

Based on these changes, many people who fall within the $5,120,000 exemption will assume that the inheritance they leave behind will not be subject to an estate tax (at least so long as they die between now and 2013). Unfortunately, it may not be that easy. Currently, Connecticut also imposes an estate tax that is separate and in addition to the Federal Tax.

Connecticut Estate Tax (UPDATED TO REFLECT 2011 CHANGE IN EXEMPTION)

  • $2,000,000 exemption - The Connecticut estate tax applies only if the amount of your Connecticut taxable estate exceeds $2,000,000 when you die. Your Connecticut taxable estate is your gross estate less deductions plus the total amount of taxable gifts made on or after January 1, 2005.
  • Rate increase depending on size of estate - The amount of estate tax begins at 7.2% of the excess over $2,000,000 and increases from there.
  • No portability - Portability only applies to the Federal exemption.
  • CT estate tax return required regardless of estate size - If your Connecticut taxable estate is more than $2,000,000 then you file a return with the Connecticut Department of Revenue Services, and if it is equal to or less than $2,000,000 you file a return with the probate court.
  • Resident and non-resident estates - If you are domiciled in Connecticut or if you own real or tangible property in Connecticut you may owe Connecticut Estate taxes if the size of your estate is greater than $2,000,000.

As you can see, many people who fall under the $5,120,000 Federal exemption will not be subject to Federal estate taxes, but will be subject to Connecticut estate taxes. Of course there are also many others who are still not subject to any estate taxes given the current law in Connecticut and at the Federal level. However...

I will continue to check in with you all as this Connecticut Estate Tax situation develops, but in the meantime, if you think you would like to have a discussion regarding the non-tax or taxable issues that affect your Estate Planning, please feel free to contact a Connecticut Estate Planning attorney by clicking here.

Categories: Estate Planning, Taxes