Connecticut currently imposes its own estate tax on estates that have a total gross value of more than $2 million. This amount is significantly less than the federal estate tax threshold; in 2013, only estates worth more than $5.25 million must file a federal estate tax return, and not all of them end up owing tax. But the Connecticut tax rate is much lower than the federal one. Estates larger than $10.1 million pay a Connecticut estate tax rate of 12%, compared to the current federal rate of 40%.
The state used to exempt estates of less than $3.5 million from tax, but changed the law in May 2011. The new law made the change retroactive to January 1, 2011. The estate of Monty Blakeman, a land developer who died in April 2011, sued over the retroactive nature of the change; the lawsuit is still pending.
Even if you don’t live in Connecticut, your estate could owe Connecticut estate tax if you own Connecticut real estate or keep other tangible assets (for example, a boat) there. If the total value of the Connecticut assets is at least $2 million, the estate will have to file a Connecticut estate tax return.
Will Your Estate Owe Tax?
For estate tax purposes, your gross estate includes all of your assets, whether or not they go through probate. That means assets held in a revocable living trust are counted as part of your estate, as are funds in a payable-on-death bank account. The gross estate includes:
- Real estate (in Connecticut or elsewhere)
- Bank accounts and certificates of deposit
- Investment accounts and securities
- Vehicles and other personal property kept in the state
- Proceeds from life insurance policies on your life, unless you had transferred ownership of the policy during your life
- Retirement plan funds
- Small business interests (whether owned as sole proprietorship, limited liability company, or small corporation)
- Any amount you give away during your life (on or after January 1, 2005) that is subject to Connectibut gift tax (your estate will get a credit for state gift tax already paid).
If you own assets with someone else, generally only your share will be included in your estate. For example, if you and your spouse own your house, half of its value would be included in your estate.
Leaving Property to Your Spouse or Civil Union Partner
Any assets you leave to your spouse are exempt from Connecticut estate tax, no matter how large the amount. (The rule is the same for federal estate tax.) If you and your same-sex partner have entered into a civil union or were married in a state that allow it, this state rules applies to you as well.
The federal government, however, doesn’t recognize same-sex marriages or civil unions, so a surviving same-sex partner cannot inherit free of federal estate tax. What’s more, if a Connecticut return is required, the estate must also file a dummy ("pro forma") federal estate tax return, completed as if the federal government treated same-sex marriages or civil unions the same as other marriages. It makes for more expense and hassle.
Filing the Tax Return
If a Connecticut estate tax return must be filed after your death, it will be your executor’s responsibility. Both the return and any tax owed are due six months after the death. Downloadable estate tax returns and instructions are available from the Connecticut Department of Revenue Services, but preparing the return is not a do-it-yourself job for your executor; expert help will be necessary. It can be paid for from estate assets.