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12 Porter Street
P.O. Box 1399
Connecticut 06039
Phone: (860) 435-2077

Cotton Hill Road
P.O. Box 450
New Hartford
Connecticut 06057
Phone: (860) 482-6651




Please note that, effective for estates of persons dying on or after January 1, 2011, the Connecticut estate and gift tax exemption is reduced to $2 million. The rates range from 7.2% of the excess over $2 million to 12% of the excess over $10.1 million.

December 14, 2009

Notice to Clients & Friends
Concerning Changes to the Connecticut Estate Tax

This Notice summarizes recent changes to the Connecticut estate and gift tax, as well as the uncertain status of the federal estate tax, and the impact this may have on your estate planning.

The Connecticut Estate (and Gift) Tax:

          Effective for persons dying (and gifts made) on or after January 1, 2010, the exemption from Connecticut estate (and gift) tax is increased from $2 million to $3.5 million. The rates are reduced by 25% (the highest rate will be 12% rather than 16% as under current law). The so-called “cliff” in the rates has been eliminated, so that the tax is assessed only on the amount over the exemption amount.

  • If your estate plan incorporated a charitable gift to “use up” the amount of the tax that would otherwise be payable due to the cliff in the estate tax rates, you will want to revise your plan now that the cliff has been eliminated.

The Federal Estate Tax:

          The status of the federal estate tax after 2009 is still uncertain. The exemption is currently $3.5 million, with a top rate of 45%. Under current law, the estate tax is scheduled to disappear in 2010, and reappear in 2011 at 2002 levels (with a $1 million exemption and a top rate of 55%). It is expected that Congress will act before the end of the year to prevent the substantial loss in revenue (and the specter of carry-over basis) that would result from allowing the estate tax to be repealed for one year. Current proposals include: permanent extension of the current estate tax exemption of $3.5 million at a top rate of 45%; extension of the current exemption and rates with a phase-in of an increased exemption up to $5 million and a reduction in the top rate to 35% over ten years; and reduction of the exemption to $2 million. It is also possible that Congress will simply extend the exemption of $3.5 million for one year, leaving the future of the estate tax beyond 2010 undecided.

What does this mean for your current estate plan?

          If no changes are made to the federal estate tax before the end of this year, and “repeal” goes into effect in 2010, a “formula” plan passing the amount that can pass free of federal estate tax to a “family” or “credit shelter” trust, or directly to children, will result in all of your assets passing to the family or credit shelter trust, or to your children, and none to your spouse. Plans that were based on the amount passing free of both Connecticut and federal estate taxes were premised on an assumption of $2 million passing to the “credit shelter” trust or gift, and that amount will, as of 2010, be $3.5 million.

          If your estate plan consists of a “disclaimer” trust or a “single QTIP” trust for the surviving spouse, the flexibility of dealing with the changing exemptions is already built into the plan. If there is no longer a need for a trust to be funded for the surviving spouse (and there are many reasons to establish a trust for a surviving spouse, regardless of taxes---especially in the case of second marriages, or to provide financial and investment management or independent decision-making), you might simplify your plan and leave all to your surviving spouse outright.

          Many planning opportunities are presented by the increased Connecticut estate tax exemption for individuals whose combined estates exceed $3.5 million:

  • If you divide your time equally between a state with a lower estate tax exemption (such as New York) and Connecticut, you might consider changing your legal residence to Connecticut to benefit from the lower exemption and tax rates. On the other hand, if you own homes and spend equal time in Connecticut and a state with no estate tax (such as Florida or New Hampshire), you should consider establishing residence in that state.

  • If you own real estate in another state with an exemption lower than Connecticut’s (such as New York, Maine, Vermont, or Massachusetts), you might consider making a gift of the property to your children (these states do not have a gift tax), or transferring the property to a qualified personal residence trust (QPRT), retaining use of the property for a stated number of years.

  • Despite a $3.5 million Connecticut gift tax exemption, the federal gift tax exemption remains at $1 million. Cumulative gifts over $1 million will incur tax at rates of 41-45%.

  • If your combined estates exceed $3.5 million, it is still appropriate to fund a credit shelter trust on the death of the first spouse to die, to shield those assets from tax on the survivor’s death. If your assets aren’t greatly in excess of that amount, you might want to alter the terms of the credit shelter trust to give preference to your spouse over other potential beneficiaries of the trust, such as children and grandchildren, or to provide that the trust benefit only your spouse during his or her lifetime.

If you should have any questions about these changes to the Connecticut estate and gift tax laws, or the status of the federal estate tax, and the impact of these changes on your estate plan, please call to schedule a time to review your existing estate plan. While this Notice is intended to alert you to changes in the law, it is not intended to suggest any affirmative duty on my part to advise you of changes in the law, or the impact of any such changes on your estate plan. You must monitor these developments in the news, and contact me to determine whether it is appropriate to make changes to your estate plan on a periodic and regular basis. You may contact me at (860) 482-6651 or (860) 435-2077.


Please be aware that this information is intended to be general and does not constitute tax advice.
Circular 230 Notice: None of the information contained herein is intended to be used, nor can it be
used, for the purpose of avoiding US tax penalties.