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In 2009, the Connecticut legislature passed laws that change the Connecticut gift, estate and income tax regimes in significant ways. In addition, the General Assembly and the Governor addressed reform of the state’s Probate Court system.

Connecticut Gift and Estate Tax
As of January 1, 2010, Connecticut estate and gift tax will apply only to estates and cumulative gifts valued at over $3,500,000. The marginal tax rates on estates and gifts in excess of $3,500,000 will also be reduced.

The legislation also eliminates an anomaly in the prior Connecticut estate and gift tax law that planners referred to as the “cliff.”

What is the “cliff”? Current Connecticut law exempts from the gift tax the first $2,000,000 of taxable gifts that do not qualify for the annual exclusion from gift tax. The Connecticut estate tax exemption is presently $2,000,000, reduced by any gift tax exemption used during one’s lifetime. However, if an individual’s estate and cumulative taxable gifts exceed $2,000,000, the full value of the estate and gifts is taxable. For example, an estate of $2,000,000 would generate no tax but an estate of $2,000,001 generates a tax liability of $101,700. This tax has been referred to as a “cliff” since $1 of additional value causes a tax of $101,700.