BREAKING NEWS: If you don't want to be stuck with Connecticut Estate Taxes read this now!

On May 4, 2011 Governor Malloy signed the budget bill that reduced the Connecticut estate tax exemption from $3.5 Million down to $2 Million. This change goes into effect on July 1, 2011, and will affect anyone who passes away in 2011 or after until further notice.

How does this affect you if you live in Connecticut or have property here?

If you have total assets of over $2,000,000 when you die (which includes life insurance proceeds payable to your loved ones), and you have not protected those assets, your estate will have to pay a death tax.

How much will my estate have to pay in death taxes? ¹

Amount of Connecticut Taxable Estate

Rate of Tax

$2,000,000 - $3,600,000

7.2% of the excess over $2,000,000

$3,600,000 - $4,100,000

$115,200 plus 7.8% of the excess over $3,600,000

$4,100,000 - $5,100,000

$154,200 plus 8.4% of the excess over $4,100,000

$5,100,000 - $6,100,000

$238,200 plus 9.0% of the excess over $5,100,000

$6,100,000 - $7,100,000

$328,200 plus 9.6% of the excess over $6,100,000

$7,100,000 - $8,100,000

$424,200 plus 10.2% of the excess over $7,100,000

$8,100,000 - $9,100,000

$526,200 plus 10.8% of the excess over $8,100,000

$9,100,000 - $10,100,000

$634,200 plus 11.4% of the excess over $9,100,000

Over $10,100,000

$748,200 plus 12% of the excess over $10,100,000

¹Senate Bill No. 1239; Public Act No. 11-6, 2011, available at http://www.cga.ct.gov/2011/ACT/Pa/pdf/2011PA-00006-R00SB-01239-PA.pdf

What can I do to avoid my loved ones getting stuck with paying this tax?

There are a number of strategies that can help you avoid paying unnecessary taxes. Here are some tools/strategies that could be very helpful depending on your circumstances.

  • Credit-Shelter/Bypass Trusts - you can use these trusts to protect your loved ones while sheltering assets (up to $2 Million) from being included in your Connecticut Taxable Estate.
  • Marital Deduction Trusts - you can use these trusts to maximize the tax benefits of the unlimited marital deduction while providing a lifetime of support to your spouse (Tip: this can be a very effective tool for tax relief when used alongside a Credit Shelter trust).
  • Irrevocable Life Insurance Trusts (ILITS) - you can use these trusts to relieve your loved ones from having to pay estate taxes on life insurance proceeds, and use the proceeds to pay excess estate taxes (Tip: these trusts can be used to create a large amount of wealth to pass on tax-free for your loved ones' education, future home purchases or general support).
  • Planned Giving - you can use a combination of charitable gifts in and outside of Trust to send funds to causes that are important to you and avoid that money being sent to the Tax man instead (Tip: talk to your estate planning attorney and financial advisor about the estate and income tax benefits of using your IRA to fund these gifts) .

What steps should I take to ensure my plans account for these Tax Law changes

  1. Contact your estate planning attorney, your financial advisor and insurance agent
  2. Set a meeting to meet with everyone at once, in order to review your existing documents and plans.
  3. Request that your attorney, advisor and agent work together to create a plan that ensures you and your loved ones are protected from unnecessary taxes and any other problems you want to avoid.
  4. Set up times for them to execute your plan and to explain your plan to your loved ones
  5. Put time on the calendar to repeat steps 1-4 in the future.

If you want to learn more about the tools mentioned in this article, feel free to browse our website.