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The Connecticut State Legislature has enacted a Unified Estate and Gift Tax, which is effective (retroactively) as of January 1, 2005. This new tax does away with the existing succession tax as well as the existing gift tax, and replaces them with the new unified tax. This has no effect on gifts made or to estates of persons who died prior to January 1, but will apply to any gifts made after this date, as well as to the estates of persons who die on or after January 1.
Under the new legislation, there is a two million dollar cumulative exemption, which applies to total lifetime gifts and transfers at death on or after January 1, 2005. Gifts that can be taxed by the state of Connecticut are brought back into the estate, and all estates of two million dollars or less are free from tax. The new tax results in a dramatic "cliff" an estate of two million is not taxed at all, while an estate worth just a dollar more than two million is subject to a tax liability of more than a hundred thousand dollars.
Since the federal estate tax is being phased out, the states are no longer receiving the funds they once did under the traditional state death tax credit. Connecticut is just one of the many states that has de-coupled its estate tax to address this problem. There may be further changes in the federal estate tax prior to 2009, when the federal exemption will be greater than the state, but until then the state exemption amount will equal or exceed the federal exemption. Since the federal estate tax is scheduled to return to its former status as of 2011, it is expected that there will be new federal legislation passed before that time comes.
For purposes of the gift tax, the federal exemption, however, is limited to $1 million, so gifts of property by Connecticut residents (or gifts of CT real estate or tangible personal property by non-residents) exceeding $1 million will be subject to a federal gift tax.
It is important to note that under the new state legislation, there is a nine month deadline for filing tax returns for all estates. All estates must file a return, even if they are under two million dollars and no tax is due. However, this provision applies from the date of passage, so non-taxable estates will not need to file a return retroactively.
These changes may necessitate a review and revision of your current estate plan. If you are interested in reviewing your plan in light of this recent development, please contact Attorney Vincenti at (860) 482-6651 or (860) 435-2077.
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