LEGISLATION; ESTATE TAX;
TAXES - ESTATE;
Connecticut laws/regulations;
August 7, 2003 |
2003-R-0572 | |
SUCCESSION AND ESTATE TAXES | ||
| ||
By: Judith Lohman, Chief Analyst | ||
You asked for a brief summary of the Connecticut succession and estate tax laws that would be in effect for 2003 and 2004 if the recently passed budget bill (HB 6802) becomes law.
SUCCESSION TAX
In both years, the tax applies only to estates passing to Class B heirs (collateral relatives of the deceased, such as brothers, sister, nephews, and cousins) or Class C heirs (anyone who was not related to the deceased). By reversing a rate reduction for taxable estates that took effect January 1, 2003 and applying 2002 rates to estates of people who die between March 1, 2003 and December 31, 2004, the budget bill applies two different sets of succession tax rates during 2003.
Tax rates for estates of those who died in January and February of 2003 are shown in Table 1 and for estates of those who die during the rest of 2003 and 2004 are shown in Table 2.
Table 1: Succession Tax Rates for Deaths in January & February 2003
CLASS B HEIRS | |
Estate Value |
Tax |
$ 1. 5 million or less |
None |
Over $ 1. 5 million |
11. 44% |
CLASS C HEIRS | |
Estate Value |
Tax |
$ 400,000 or less |
None |
$ 400,001 to $ 600,000 |
17. 16% |
$ 600,001 to $ 1 million |
18. 59% |
Over $ 1 million |
20. 02% |
Table 2: Succession Tax Rates for Deaths Between March 1, 2003, and December 31, 2004
CLASS B HEIRS | |
Estate Value |
Tax |
$ 600,000 or less |
None |
$ 600,000 to $ 1 million |
11. 7% |
Over $ 1 million |
14. 3% |
CLASS C HEIRS | |
Estate Value |
Tax |
$ 200,000 or less |
None |
$ 200,001 to $ 250,000 |
14. 3% |
$ 250,001 to $ 400,000 |
15. 73% |
$ 400,001 to $ 600,000 |
17. 16% |
$ 600,001 to $ 1 million |
18. 59% |
Over $ 1 million |
20. 02% |
Tax rates for both classes of heirs will resume annual scheduled reductions starting with deaths on or after January 1, 2005. The succession tax on estates passing to Class B heirs will be eliminated for deaths on or after January 1, 2006 and the tax on those passing to Class C heirs will be eliminated for deaths on or after January 1, 2008.
ESTATE TAX
Regular Estate Tax
Connecticut’s estate tax is linked to the federal estate tax. For deaths in 2003, the federal tax applies to estates valued at $ 1 million or more. For deaths in 2004, the federal tax applies to estates of $ 1. 5 million or more. Because Connecticut’s law is tied to the federal law, these taxable estate thresholds also apply to the state tax.
The state tax is also linked to the federal tax in that Connecticut’s tax equals the maximum federal estate tax credit for state death taxes paid. Federal law is currently phasing out the federal credit for state taxes, reducing it by 25% per year until it is eliminated in 2005. By reducing the federal credit, the federal law is simultaneously reducing Connecticut’s estate tax. Thus, for deaths in 2003 and 2004, the Connecticut tax will be 50% and 25%, respectively, of its 2001 rate.
The budget bill does not affect Connecticut’s regular estate tax but imposes an alternative tax on certain estates over $ 1 million (see below).
Temporary Contingent Estate Tax
The budget bill imposes a contingent tax, payable in lieu of the regular estate tax, on estates valued at over $ 1 million of people who die between July 1, 2004 and January 1, 2005. For these estates, the Connecticut estate tax will be 1. 3 times the full maximum federal estate tax credit, excluding the 75% federal credit reduction applicable in 2004. The budget bill requires estates subject to the tax to file returns and pay within six months after the death date instead of within nine months after, as under the regular estate tax.
Under the budget bill, if, by July 1, 2004, the Office of Policy and Management secretary certifies that the state will receive $ 110 million or more in extra federal assistance for FY 2005, the contingent estate tax will not take effect.
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