Connecticut Estate Tax

An estate that isn’t large enough to owe federal estate tax might still need to pay a separate Connecticut estate tax.  For deaths in 2011, estates with a total gross value of more than $2 million are subject to the state estate tax. (Federal estate tax returns are currently required only for estates worth more than $5 million.) 

There is some uncertainty about the current Connecticut law, however. The law that lowered the estate tax exemption from its previous $3.5 million level to the current $2 million was signed in May 2011, but the change was made retroactive to January 1, 2011. A lawsuit by the estate of Monty Blakeman, a wealthy land developer who died in April of 2011, challenging the retroactive change, is now pending.   

Nonresidents and Estate Tax

It’s not just state residents who may owe Connecticut estate tax. If a nonresident owned real estate in Connecticut or kept other tangible assets (for example, a boat or other vehicle) there, and the total value of the assets is at least $2 million, the estate must file a Connecticut estate tax return.

Totaling Up the Gross Estate

To determine the value of the gross estate, add up the value of the deceased person’s assets. Be sure to include:

• Connecticut real estate
• Bank accounts, certificates of deposit, and investment accounts, including those for which a payable-on-death beneficiary was named
• Vehicles and other personal property kept in the state
• Proceeds from life insurance policies on the deceased person’s life, unless that person didn’t own the policy
• Retirement account funds
• Business interests (in a sole proprietorship, limited liability company, or small corporation)

If any assets were owned with someone else, count only the value of the deceased person’s interest. For example, if the deceased person owned a house with her husband, include half of its value. If, however, property was owned in joint tenancy with someone else, then include the total value except for funds that the other person contributed.

Also include these assets:

• Taxable gifts made during life. If the deceased person made taxable gifts (more than the annual exclusion amount, currently $13,000 per year per recipient), then add the taxable amount of those gifts to the value of the estate.
• Some transfers made fewer than three years before death. If the deceased person transferred a life insurance policy to an irrevocable life insurance trust within three years of death, you must include the value of the policy in the estate.
• Assets held in a trust. Also include the value of assets the deceased person held in a revocable living trust or other trusts the deceased person controlled.

Connecticut Estate Tax Rates

The top Connecticut estate tax rate, for estates over $10.1 million, is 12%, far below the federal rate.

No ‘Portability’ of Exemptions for Connecticut Couples

Federal law currently allows spouses to share their individual federal estate tax exemptions. If the first spouse to die doesn’t use up all of his or her entire $5 million federal estate tax exemption, then the second spouse’s estate can use the unused portion of the first spouse’s exemption amount. This is called the “portability” provision. It’s set to expire at the end of 2012, but Congress may choose to extend it. 

Spouses cannot share their individual estate tax exemptions for Connecticut estate tax purposes.

Property Left to a Surviving Spouse or Civil Union Partner

Property left to a surviving spouse is exempt from state estate tax, no matter what the amount. This is called the marital deduction. Same-sex couples who entered into a civil union or are in a marriage recognized under state law are treated the same as other married couples.

But because the federal government doesn’t recognize same-sex marriages or civil unions, if there is a surviving same-sex partner who claims the marital deduction, the estate must file a dummy federal estate tax return, completed as if the federal government treated same-sex marriages or civil unions the same as other marriages.

Which Tax Return to File

There are two Connecticut estate tax returns: one for estates that owe tax (Form CT-706/709), and one for estates that don’t (Form CT-706 NT).

If the estate owes tax, Form CT-706/709 is filed with the state, and a copy is submitted to the probate court. The deadline for filing the return and paying any tax due is six months after the death.

If the taxable estate is less than the exemption amount ($2 million), the executor files Form CT-706 NT with the probate court. A death certificate must be attached. It’s due six months after the death.

The Connecticut Department of Revenue Services offers downloadable estate tax return forms and instructions.

Expert Help With Estate Tax Returns

Preparing a federal or Connecticut estate tax return is not an easy task; both returns are long and full of confusing jargon and instructions. Get help from an expert. Hire a lawyer or CPA who has lots of recent experience with Connecticut estate tax returns and procedures; the fee may be several thousand dollars, but it will be worth it.