November 4, 2009 |
2009-R-0413 | |
2009 ESTATE TAX CHANGES | ||
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By: Judith Lohman, Chief Analyst | ||
You asked for an explanation of 2009 legislative changes in the estate tax.
SUMMARY
In 2009, the General Assembly made significant changes in the Connecticut estate tax. In most cases, the changes take effect for estates of people who die on or after January 1, 2010. The legislature: (1) increased the minimum value of an estate subject to the Connecticut estate tax from $2 million to $3.5 million, (2) eliminated the tax “cliff” and (3) reduced marginal tax rates on estates by 25%. The legislature also reduced the time an executor has to file an estate tax return; for deaths on or after January 1, 2010, established a credit against estate tax for gift taxes paid between January 1, 2005 and December 31, 2009; and made conforming changes (PA 09-3, June Special Session as amended by PA 09-8, September Special Session).
ESTATE TAX CHANGES
Taxable Estate Threshold
The 2009 legislation exempts more estates from the Connecticut estate tax by increasing the minimum value of estates subject to the tax from $2 million to $3.5 million. Thus, under the new law, Connecticut's estate tax threshold is the same as the current (2009) federal estate tax threshold.
Tax Cliff
Under prior law, an estate valued at $2 million or less was not taxed at all while the full value of any estate valued more than $2 million was subject to the tax. This structure produced a so-called “cliff” in which a $1 increase in the value of a taxable estate from $2,000,000 to $2,000,001 increased its tax liability from zero to $101,700. The 2009 legislation eliminates the requirement that, once an estate's taxable value exceeds the taxable threshold, the tax must be applied to the entire value. Instead, it applies the tax only to the marginal value of the estate that exceeds the threshold, thus eliminating the cliff.
Tax Rates
The 2009 legislation reduces tax rates by 25% for deaths occurring on or after January 1, 2010 as shown in Table 1.
TABLE 1: OLD AND NEW ESTATE TAX RATES
VALUE OF TAXABLE ESTATE |
OLD TAX RATE Deaths on or before December 31, 2009 (Add cols. C & D) |
NEW TAX RATE Deaths on or after January 1, 2010 (Add cols. E & F) | |||
Col. A: Over |
Col. B: But not over |
Col. C: Tax on Col. A |
Col. D: Tax rate on excess over Col. A |
Col.E: Tax on Col. A |
Col. F: Tax rate on excess over Col. A |
0 |
$2,000,000 |
NO TAX |
NO TAX | ||
$2,000,000 |
2,100,000 |
5.085% of the total over 0 | |||
2,100,000 |
2,600,000 |
$106,800 |
8.0% | ||
2,600,000 |
3,100,000 |
146,800 |
8.8% | ||
3,100,000 |
3,500,000 |
190,800 |
9.6% | ||
3,500,000 |
3,600,000 |
229,200 |
9.6% |
0 |
7.2% |
3,600,000 |
4,100,000 |
238,800 |
10.4% |
$7,200 |
7.8% |
4,100,000 |
5,100,000 |
290,800 |
11.2% |
46,200 |
8.4% |
5,100,000 |
6,100,000 |
402,800 |
12.0% |
130,200 |
9.0% |
6,100,000 |
7,100,000 |
522,800 |
12.8% |
220,200 |
9.6% |
7,100,000 |
8,100,000 |
650,800 |
13.6% |
316,200 |
10.2% |
8,100,000 |
9,100,000 |
786,800 |
14.4% |
418,200 |
10.8% |
9,100,000 |
10,100,000 |
930,800 |
15.2% |
526,200 |
11.4% |
Over $10,100,000 |
1,082,800 |
16.0% |
640,200 |
12.0% | |
ESTATE TAX RETURN FILING DEADLINE
The General Assembly reduced the amount of time an executor has to file an estate tax return by making the filing deadline six rather than nine months after the date of death. The new, shorter filing period applies to deaths occurring on or after July 1, 2009.
ESTATE TAX CREDIT FOR CONNECTICUT GIFT TAXES PAID
For those who die on or after January 1, 2010, the new law includes the aggregate value of all Connecticut taxable gifts the decedent made on or after January 1, 2005 in the taxable estate and thus counts those gifts against the lifetime total estate tax exemption. But, under the new legislation, estates are not entitled to any refund for gifts taxes paid under the higher tax rates in effect between January 1, 2005 and December 31, 2009 if those taxes exceed the estate tax due under the new rates. Instead, the new law gives the estates a credit against their estate tax for gift taxes paid on gifts made on or after January 1, 2005, but limits the credit to the total estate tax due.
CONFORMING CHANGES
The new law makes conforming changes in requirements for filing tax returns with the probate court and for probate courts to release estate tax liens.
Tax Returns Filed with Probate Court
By law, all estates, regardless of their gross value, must file an estate tax return. If the estate's value is more than the taxable threshold, the executor must file the return with the Department of Revenue Services (DRS) with a copy to the probate court for the district where the decedent lived or, if the decedent was not a Connecticut resident, where his Connecticut property is located. If the estate's value is below the tax threshold, the return must be filed only with the appropriate probate court. The probate judge must review the return and issue a written opinion to the estate's representative if the judge determines it is not subject to the estate tax.
For deaths on or after January 1, 2010, the new law increases, from $2 million to $3.5 million, the threshold for filing an estate tax return only with the probate court.
Release of Estate Tax Liens
By law, a person who does not owe, or who has paid, the estate tax receives a certificate releasing the lien on his interest in real property in the estate. The probate court is required to issue all lien release certificates for estates below the estate tax threshold. For deaths on or after January 1, 2010, the new law requires probate courts to issue all lien release certificates for estates of $3.5 million or less.
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