Connecticut Estate Tax
There is an estate tax in Connecticut. It is progressive, and tax rates range from 7.20% to 12.00%. For 2018, the estate tax applies to estates that are worth more than $2.60 million. If you’re resident of Connecticut and thinking about planning your estate, this guide will explain what you need to know about the estate tax to make sure your affairs are in order when you pass away. If the estate tax may apply to you, consider finding a financial advisor to guide you through the estate planning process. SmartAsset can help you find an advisor with our free financial advisor matching service.
Connecticut Estate Tax Exemption
Connecticut is one of 12 states, plus the District of Columbia, that imposes an estate tax. The threshold for the Connecticut estate tax is $2.60 million as of 2018. In 2019, that threshold will increase to $3.60 million. There are still some outstanding questions about what will happen after 2019, as the state has passed two different bills. One bill gradually increases the exemption to the federal limit of $11.18 million by 2023. The other bill raises the exemption to $5.49 million in 2020 and then does not further increase it. The state will need to take further action to resolve this, but that has not yet happened.
If your estate is worth more than the exemption for the year in which you die, you’ll owe estate tax on any money in your estate above the threshold. You won’t owe taxes on the portion of your estate covered by the exemption.
In 2018, there is an estate tax cap of $20 million. In 2019, the state will lower that cap to $15 million. You won’t pay more than the cap regardless of the value of your estate.
Connecticut Estate Tax Rate
Connecticut’s estate tax is progressive, with a series of increasing rates applying as the value of the estate gets higher.
You can find your taxable estate bracket in the chart below. Make sure to first subtract the exemption ($2.60 million for 2018) from your total estate to determine your taxable estate. Note that the first bracket won’t exist after 2018, as the exemption is set to increase thereafter. All other brackets will remain the same.
The base taxes amount in the second column is how much you’ll owe on the money that falls below your tax bracket. To calculate your estate tax burden, you’ll need to determine the amount by which your taxable estate exceeds the bottom limit of your bracket. Multiply that figure by the marginal rate. Finally, add that amount to the base taxes amount. The sum is your total tax burden.
Here is an example of how that would work in practice. Let’s say you have an estate worth $5.50 million and die in 2018. First, subtract the $2.60 million exemption, leaving a taxable estate of $2.90 million. According to the chart, your base payment is $195,000. You also owe 10% of the remaining $400,000 that falls in your tax bracket, which comes to $40,000. Add that to the base rate and your Connecticut estate tax burden is $235,000.
CONNECTICUT ESTATE TAX RATES Taxable Estate* Base Taxes Paid Marginal Rate Rate Threshold** $0 – $1 million $0 7.20% $0 $1 million – $1.50 million $72,000 7.80% $1 million $1.50 million – $2.50 million $111,000 8.40% $1.50 million $2.50 million – $3.50 million $195,000 10.00% $2.50 million $3.50 million – $4.50 million $295,000 10.40% $3.50 million $4.50 million – $5.50 million $399,000 10.80% $4.50 million $5.50 million – $6.50 million $507,000 11.20% $5.50 million $6.50 million – 7.50 million $619,000 11.60% $6.50 million $7.50 million and up $735,000 12% $7.50 million
*The taxable estate is the total above the exemption of $2.60 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.
What Is the Estate Tax?
The estate tax is a tax applied to an estate after a person dies but before the person’s money gets passed on to heirs. It is sometimes called the “death tax.” Only estates that reach a certain threshold are subject to the estate tax.
The estate tax is not the same as the inheritance tax, which is levied after the estate is dispersed to a person’s beneficiaries. While the estate tax is taken out of the estate, the beneficiaries are responsible for paying the inheritance tax.
Connecticut Inheritance Tax
There is no inheritance tax in Connecticut. However, another state’s inheritance tax may apply to you if your grantor lived in a state that has an inheritance tax. In Kentucky, for instance, the inheritance tax applies to all in-state property, even if the inheritor lives in another state. If someone who lives out-of-state leaves you something, make sure to check the local laws in your grantor’s state to see if you owe inheritance tax.
Connecticut Gift Tax
Connecticut is the only state in the union that levies its own gift tax. It has a $2.60 million lifetime exemption, which will increase to $3.60 million in 2019. In 2020, the state will change its exemption to match the federal gift tax exemption of $11.18 million. You must file gifts over $10,000.
Connecticut Estate Tax for Married Couples
Connecticut does not have portability for spouses. When the second spouse of a married couple dies, only one exemption applies.
Federal Estate Tax
There is a federal estate tax that may apply on top of the Connecticut estate tax, but it has a higher exemption level of $11.18 million. This exemption is portable between spouses. This means a couple can protect up to $22.36 million with proper legal steps.
The top tax rate for the federal estate tax is 40%. Using the same method described above, you can find your federal estate tax burden within the table below.
FEDERAL ESTATE TAX RATES Taxable Estate* Base Taxes Paid Marginal Rate Rate Threshold** $1 – $10,000 $0 18% $1 $10,000 – $20,000 $1,800 20% $10,000 $20,000 – $40,000 $3,800 22% $20,000 $40,000 – $60,000 $8,200 24% $40,000 $60,000 – $80,000 $13,000 26% $60,000 $80,000 – $100,000 $18,200 28% $80,000 $100,000 – $150,000 $23,800 30% $100,000 $150,000 – $250,000 $38,800 32% $150,000 $250,000 – $500,000 $70,800 34% $250,000 $500,000 – $750,000 $155,800 37% $500,000 $750,000 – $1 million $248,300 39% $750,000 Over $1 million $345,800 40% $1 million
*The taxable estate is the total above the exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Connecticut Tax Picture
Connecticut is not tax-friendly for retirees. In fact, it ranks among the least tax-friendly states in the country for those in their golden years. The state fully taxes withdrawals from retirement accounts, like IRA or 401(k) plans, as well as payments from private or public pension plans. It also taxes Social Security. However, seniors who have an adjusted gross income below $50,000 ($60,000 for joint filers and heads of household) are exempt from Social Security taxes. Connecticut’s income tax rate ranges from 3.00% to 6.99%.
The average property tax rate in Connecticut is 2.02%, the fourth highest in the country. That said, seniors age 65 and over who own and occupy a Connecticut home are eligible for a property tax circuit breaker of up to $1,250 for married couples or $1,000 for individuals. That is provided their income is less than a certain amount ($43,000 for married couples and $35,300 for singles).
Sales tax is 6.35% throughout Connecticut. There are no local sales taxes.
Estate Planning Tips
Confused, or have some lingering questions? A financial advisor can help you figure everything out. SmartAsset’s free financial advisor matching service can help you find an advisor who meets your needs. You answer a few questions and we match you with up to three advisors in your area, all fully vetted and free of disclosures. Your advisor matches will get in touch so you can see if one of them is a good fit for you.
When planning your estate, make sure you name a guardian for your kids. Not doing so happens to be a common estate planning mistake. Thinking about this isn’t fun, but it beats not having a plan if something were to happen.
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