Connecticut and Federal Estate Taxes Sing in Harmony | Murtha Cullina

For the past decade, the unified federal estate tax system has provided an amount that anyone can pass on either by gift or on death to persons other than a spouse tax-free. This amount is called the “applicable exclusion amount”.1 The applicable exclusion amount is actually the sum of two other defined numbers: (i) the “base exclusion amount”2 plus (ii) the “unused deceased spouse exclusion amount”.3

The base exclusion amount was $5 million in 2010 and is adjusted for inflation each year by law. Since the Tax Cuts and Jobs Act 2017,4 the basic exclusion amount is temporarily doubled. In 2022, the base inflation-adjusted exclusion amount is $12.06 million. In 2026, this doubling ceases and the base exclusion amount will revert to $5 million, adjusted for inflation. Most practitioners expect the base exclusion amount for 2026 to be between $6.5 and $7 million.

This 2017 federal change left Connecticut’s $2 million estate and gift tax exemption far behind. Pressure has intensified in Connecticut to harmonize the Connecticut estate and gift tax with the federal estate and gift tax, so beginning in 2018, the estate tax exemption and donations from Connecticut also began to increase.5 In 2022, Connecticut’s exemption is $9.1 million, and in 2023, Connecticut’s exemption was already expected to meet the federal base exclusion amount.6

Nevertheless, there were nagging concerns. Connecticut law clearly states the “basic federal exclusion amount,” which federal law clearly defines as an amount adjusted annually for inflation, and an amount that is double the normal amount through 2026. However , being in Connecticut, practitioners wondered if the Connecticut Legislature meant what he said, and if that really didn’t mean incorporating the doubled federal base disqualification amount through 2026. Adding to confusingly, Connecticut’s related law setting out estate tax filing requirements states that in 2023, when the federal base exclusion amount of more than $12 million will effectively guide the taxation of Connecticut estate and gift tax,seven a Connecticut estate tax return will need to be filed with the Commissioner of Tax Services if the Connecticut taxable estate is greater than $5.49 million.8 Why this difference?

Fortunately, dissonance is eliminated by Connecticut Public Law No. 22-110, signed into law on May 27, 2022, and effective October 1, 2022.

This new public law clarifies that for Connecticut estate and gift tax purposes, the “basic federal exclusion amount” means the dollar amount, published annually by the Internal Revenue Service, to which a deceased’s estate would be required to file a federal estate tax return, or above which a donor would be liable for federal gift tax.9 This clearly incorporates the basic federal exclusion amount as adjusted annually for inflation and as it is currently doubled. The public law also changes the reference in CGS §12-392(b)(3)(J) of $5.49 million to the federal base exclusion amount, thereby harmonizing the income tax reporting requirement. Connecticut Estates with the Connecticut Estate Applicability Threshold. tax.

[3] IRC §2010(c)(4). The Unused Deceased Spouse Exclusion Amount (“DSUEA”) is only available to the surviving spouse whose predeceased spouse left that deceased spouse’s unused base exclusion amount to them by filing a federal income tax return. The DSUEA will not be discussed further here.

[5] June Sp. Sess. PA 17-2; the General Assembly continued to amend CGS Sec. 12-392 until it assumes its current form after PA 18-81.

[6] CGS §12-391(g)(9). Connecticut doesn’t actually have an exemption per se, but rather an amount up to which the tax rate is zero.

[7] Connecticut has had its current version of gift tax since 2005. Connecticut’s taxable gifts after 2004 affect Connecticut’s estate tax calculation.

[8] CGS §12-392(b)(3)(J).

[9] Connecticut Public Act No. 22-110, Sections 15, 16 and 17.

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