Connecticut Estate Tax: $13.99M Exemption at Federal Parity

Connecticut occupies an unusual position in the US state estate tax landscape. Its $13.99 million federal-parity exemption (2026) means that the overwhelming majority of Connecticut estates owe no state estate tax — only the wealthiest 0.1 to 0.2 percent of decedents trigger Connecticut estate tax exposure. Yet for the estates that do exceed the parity threshold, the flat 12 percent state rate stacks directly on top of the 40 percent federal rate, producing a combined effective rate of approximately 47 percent on the dollars above the federal exemption.

Connecticut is also the only US state with a gift tax. The Connecticut gift tax operates in parallel with the federal gift tax under IRC Section 2501, sharing the $19,000 annual exclusion and the $13.99 million lifetime exemption. The integration of gift and estate tax under a unified credit system means that lifetime gifts and at-death transfers are taxed cumulatively, the same way the federal system works under IRC Section 2010.

This guide walks the Connecticut estate tax structure under Conn. Gen. Stat. Section 12-391, the unique Connecticut gift tax under Section 12-642, the $15 million per-estate cap that functionally limits the tax on the largest estates, and the federal planning strategies (SLAT, GRAT, ILIT, family LLC discounts) that work equivalently for Connecticut purposes. The conclusion: Connecticut planning is functionally federal planning for the small population of estates above $13.99 million, but the gift tax adds reporting complexity that other states do not impose.

The Connecticut estate tax structure under Conn. Gen. Stat. Section 12-391

Connecticut imposes its estate tax under Chapter 217 of the Connecticut General Statutes, primarily codified in Conn. Gen. Stat. Section 12-391. The mechanics:

• Filing threshold: $13,990,000 of Connecticut taxable estate value (matches the federal exemption under IRC Section 2010 for 2026, indexed annually).
• Tax base: the Connecticut taxable amount, calculated as the gross estate minus deductions minus the $13.99 million exemption.
• Rate structure: flat 12 percent on the taxable amount above the exemption.
• Tax cap: total Connecticut estate tax is capped at $15 million per estate under Section 12-391(g), reached at a Connecticut taxable amount of $125 million (approximately $138.99M total estate).
• Tax form: Connecticut Form CT-706/709 (combined estate and gift tax return). Due 6 months after death (note: this is shorter than the federal 9-month deadline; verify on the Connecticut Department of Revenue Services website).
• Gross estate inclusion: follows the federal definition under IRC Section 2031, with additions for non-resident decedents owning Connecticut-situs real and tangible personal property.
• Deductions: the same categories as federal — debts, funeral expenses, administration costs, unlimited marital deduction, unlimited charitable deduction.
• Portability: Connecticut does NOT recognize portability of the unused exemption between spouses for state purposes (despite federal parity on the exemption amount itself). This is a critical planning point that catches many out-of-state advisors by surprise.

The federal-parity exemption: how Connecticut tracks the federal number

Conn. Gen. Stat. Section 12-391(j) establishes the exemption at the “basic exclusion amount” under IRC Section 2010(c)(3), which is the federal exemption for the year of death. The phase-in ran from 2018 to 2023:

• 2018: $2,600,000
• 2019: $3,600,000
• 2020: $5,100,000
• 2021: $7,100,000
• 2022: $9,100,000
• 2023: full federal parity ($12,920,000)
• 2024: $13,610,000
• 2025: $13,990,000
• 2026: $13,990,000 (or higher, depending on inflation adjustment)

Because the exemption is tied by statute to the federal exemption, any change to federal law (such as a TCJA sunset reducing the federal exemption to approximately $7M) automatically reduces the Connecticut exemption in lockstep. As of May 2026, the One Big Beautiful Bill Act (OBBBA) extended the TCJA-doubled exemption permanently, so the Connecticut exemption remains at the current level. If future legislation reduces the federal exemption, Connecticut will follow.

The Connecticut gift tax: the only one of its kind

Connecticut is the only US state that imposes a gift tax. Conn. Gen. Stat. Section 12-642 establishes the tax on transfers by gift made by Connecticut residents (and on gifts of Connecticut-situs real property by non-residents).

Annual exclusion

The Connecticut gift tax annual exclusion matches the federal annual exclusion under IRC Section 2503(b): $19,000 per donee in 2026. Gifts at or below the annual exclusion are not reportable on Form CT-706/709 and do not consume any of the lifetime exemption.

Lifetime exemption

The Connecticut gift tax lifetime exemption is integrated with the Connecticut estate tax exemption under a unified credit system. Cumulative lifetime taxable gifts (gifts above the annual exclusion in any year) reduce the available Connecticut estate exemption by the same amount. The total combined exemption (gift plus estate) is $13.99 million in 2026.

Example: a Connecticut resident makes $5 million of taxable gifts in 2026 (using $5M of his $13.99M lifetime exemption). His remaining Connecticut estate exemption is $13.99M minus $5M equals $8.99M. If he dies in 2027 with a $20 million estate, the Connecticut taxable amount is $20M minus $8.99M equals $11.01M, and the tax at 12 percent is $1,321,200. Without the prior gifts, the tax would have been $20M minus $13.99M equals $6.01M, times 12 percent equals $721,200. The lifetime gifts “used up” $5M of the exemption.

Reporting requirements

Connecticut gifts above the annual exclusion are reported on Form CT-706/709 in the year of the gift, even if no tax is owed (because the gift is within the lifetime exemption). The form is the same one used for Connecticut estate tax returns; the “709” portion handles the gift tax filing.

The Connecticut Department of Revenue Services and IRS share information on lifetime gifts, so federal Form 709 filings are typically cross-checked against Connecticut filings. A Connecticut resident who reports a gift on federal Form 709 but not on Connecticut Form CT-706/709 will likely receive an inquiry from DRS.

Out-of-state gifts

Gifts by a Connecticut resident of out-of-state property (e.g., a Connecticut resident giving cash to a child) are subject to Connecticut gift tax. Gifts by non-Connecticut residents are subject to Connecticut gift tax only if the gift is of Connecticut-situs real property. Domiciliary residency (the long-term home state) determines applicability.

The $15 million cap on Connecticut estate tax

Conn. Gen. Stat. Section 12-391(g) caps the total Connecticut estate tax at $15 million per estate. The cap is reached when the Connecticut taxable amount equals $125 million (at the flat 12 percent rate). For estates above approximately $138.99 million ($125M taxable plus $13.99M exemption), the Connecticut tax is fixed at $15 million regardless of estate size.

The cap was enacted to mitigate the migration risk of ultra-high-net-worth Connecticut residents relocating to no-estate-tax states (Florida, Texas, Wyoming, Tennessee) before death. Without the cap, a $500 million Connecticut estate would face $58.32 million in Connecticut estate tax (12 percent of $486M), creating strong incentive to establish residency elsewhere.

For estates at the cap, the combined federal plus Connecticut effective rate is:

• $140M estate, $13.99M federal exemption, 40 percent federal rate on $126.01M = $50.4M federal tax
• $15M Connecticut tax (cap)
• Total: $65.4M combined tax
• Effective rate: 46.7 percent on the $140M total estate

Worked example: $20 million Connecticut estate

Richard, age 81, dies in Greenwich, Connecticut. His estate consists of:

• Primary residence: $4,000,000
• Vacation home (Cape Cod, Massachusetts): $2,500,000
• Taxable brokerage account: $6,000,000
• Traditional IRA: $3,000,000
• Roth IRA: $1,500,000
• Life insurance death benefit (owned by Richard): $2,000,000
• Bank accounts, personal property, art collection: $1,000,000
• Total gross estate: $20,000,000

Richard made $1.5 million of taxable gifts during his lifetime (reported on Form CT-706/709 over multiple years). His remaining Connecticut estate exemption is $13.99M minus $1.5M equals $12.49M.

Connecticut estate tax

• Gross estate: $20,000,000
• Deductions: $200,000 administration, debts, funeral
• Connecticut taxable estate: $19,800,000
• Remaining Connecticut exemption (after prior gifts): $12,490,000
• Connecticut taxable amount: $19,800,000 minus $12,490,000 equals $7,310,000
• Connecticut estate tax: $7,310,000 multiplied by 12 percent equals $877,200

Federal estate tax

• Gross estate: $20,000,000
• Connecticut estate tax deduction under IRC Section 2053: $877,200
• Federal taxable estate: $20,000,000 minus $877,200 minus $200,000 deductions equals $18,922,800
• Remaining federal exemption (after $1.5M prior gifts): $12,490,000
• Federal taxable amount: $18,922,800 minus $12,490,000 equals $6,432,800
• Federal estate tax at 40 percent: $2,573,120

Combined estate tax burden

• Connecticut: $877,200
• Federal: $2,573,120
• Combined: $3,450,320 (effective rate 17.3 percent)

Planning strategies for Connecticut estates above the parity exemption

Strategy 1: Spousal Lifetime Access Trust (SLAT)

The SLAT uses one spouse's lifetime exemption to fund an irrevocable trust for the benefit of the other spouse. The assets are removed from both spouses' estates while preserving the funding spouse's indirect access to income and principal through the beneficiary spouse. For a Connecticut couple with $20M of assets, funding a $10M SLAT in 2026 (using $10M of one spouse's $13.99M lifetime exemption) removes $10M plus all future appreciation from both Connecticut and federal estate tax. If the $10M grows to $25M over 20 years, the family saves Connecticut estate tax of approximately $1.8M (12 percent of the $15M growth) plus federal estate tax of approximately $6M (40 percent of $15M).

Connecticut law follows the federal SLAT rules under IRC Section 2503 and Section 2511. The SLAT works the same way for Connecticut as it does federally, with the additional benefit that the Connecticut gift tax filing on the SLAT funding is integrated with the federal Form 709 filing.

Strategy 2: Grantor Retained Annuity Trust (GRAT)

The GRAT under IRC Section 2702 transfers appreciation above the IRC Section 7520 hurdle rate to heirs gift-tax-free. The grantor transfers assets to the trust and retains an annuity stream for a fixed term; if the assets appreciate faster than the hurdle rate, the excess passes to the remainder beneficiaries gift-tax-free.

The Section 7520 rate in May 2026 is approximately 5.2 percent. A 2-year zeroed-out GRAT funded with $10M of expected high-appreciation stock can transfer the excess appreciation above 5.2 percent to heirs without consuming any lifetime exemption. For Connecticut residents with concentrated low-basis stock in fast-growing companies, the GRAT is one of the most efficient wealth-transfer tools available.

Strategy 3: Irrevocable Life Insurance Trust (ILIT)

Life insurance proceeds are included in the decedent's gross estate under IRC Section 2042 if the decedent owned the policy or had incidents of ownership. Richard's $2 million policy in our example added approximately $240,000 to his Connecticut estate tax burden (12 percent of $2M).

Transferring the policy to an ILIT removes the proceeds from the gross estate after the 3-year lookback period under IRC Section 2035. Annual premium payments to the ILIT are structured as gifts qualifying for the annual gift exclusion ($19,000 per beneficiary in 2026) using Crummey withdrawal powers. For a couple with $2M of insurance and 4 beneficiaries (2 children plus 2 grandchildren), each spouse can gift $76,000/year to the ILIT (4 recipients times $19,000) without using any lifetime exemption.

Strategy 4: Family LLC valuation discounts

Connecticut accepts the federal valuation discounts for family limited liability companies and family limited partnerships under IRC Section 2031 and Revenue Ruling 93-12. Discounts for lack of marketability (DLOM) and lack of control (minority interest) can reduce the appraised value of family business interests by 25 to 40 percent.

Example: a $10 million family LLC interest gifted to children with a combined 32 percent discount has an appraised value of $6.8M for gift tax purposes. The $3.2M reduction in taxable gift value saves $384,000 in Connecticut gift tax (12 percent of $3.2M) plus $1.28M in federal gift tax (40 percent of $3.2M). The discount must be supported by a qualified appraisal documenting the lack of marketability and lack of control.

Strategy 5: Out-of-state property structuring

Connecticut taxes the worldwide estate of Connecticut residents. However, for out-of-state real property held in an entity (LLC, family partnership), the entity interest may be considered intangible personal property rather than real property, which can affect the Connecticut taxable estate calculation. Structuring out-of-state real property holdings through state-specific entities requires technical analysis but can produce material savings.

Connecticut residency planning: when relocation makes sense

For Connecticut residents with estates well above the parity exemption, relocation to a no-estate-tax state can produce material savings:

• Florida: no state estate or gift tax. Florida residency requires establishing a primary home, voter registration, driver's license, and the 183-day rule.
• Texas: no state estate or gift tax. Similar residency standards as Florida.
• Wyoming: no state estate or gift tax. Plus business-friendly trust laws (Wyoming Cody Trust Act) for asset protection.
• Tennessee: no state estate or gift tax. Plus no state income tax.
• South Dakota: no state estate or gift tax. Plus dynasty trust laws with no rule against perpetuities.

For a Connecticut resident with a $50 million estate, relocating to Florida saves $4.32 million in Connecticut estate tax (12 percent of $36.01M taxable amount). The relocation must be genuine: severing Connecticut domicile requires real lifestyle changes, including selling or significantly reducing the Connecticut residence, registering vehicles and to vote in the new state, and spending more than 183 days per year in the new state. Connecticut DRS has aggressively challenged claimed relocations, particularly for high-net-worth individuals who maintain significant Connecticut ties.

Key takeaways

• Connecticut imposes an estate tax under Conn. Gen. Stat. Section 12-391 on estates exceeding the federal parity exemption ($13.99 million per individual in 2026, indexed annually). A flat 12 percent rate applies to amounts above the exemption.
• Connecticut is the only US state that imposes a gift tax (under Section 12-642). The gift tax operates in parallel with the federal gift tax under IRC Section 2501, sharing the $19,000 annual exclusion and the $13.99M lifetime exemption integrated through a unified credit.
• Connecticut estate tax is capped at $15 million per estate under Section 12-391(g), reached at approximately $138.99M total estate. The cap functionally limits the tax on the largest Connecticut estates.
• Connecticut does NOT recognize portability of the unused exemption between spouses for state purposes, despite tracking the federal exemption at full parity. Married couples should use credit shelter trusts to preserve both spouses' exemptions.
• Federal estate planning strategies work equivalently for Connecticut purposes: SLAT, GRAT, ILIT, family LLC valuation discounts, and QPRTs all reduce Connecticut estate tax at the same effectiveness as for federal-only planning.
• For estates above the parity exemption, the combined Connecticut plus federal estate tax produces an effective rate of approximately 47 percent on amounts above the exemption (12 percent state plus 40 percent federal, adjusted for the federal deduction under IRC Section 2053).
• Relocation to no-estate-tax states (Florida, Texas, Wyoming, Tennessee, South Dakota) can produce material savings for ultra-high-net-worth Connecticut residents, but requires genuine severance of Connecticut domicile under the 183-day rule and related residency tests.