Understanding Connecticut and Federal Estate & Inheritance Taxes in 2026

The Connecticut Estate Tax

Connecticut’s estate tax has distinct thresholds and mechanics that are worth understanding before planning decisions are made.

Exemption Amount

Connecticut’s estate tax exemption mirrors the federal exemption in 2026: $15 million per person.

For married couples, the exemption can total $30 million with proper estate planning, often using trusts. Connecticut currently does not have a portability election that would permit a surviving spouse to claim a deceased spouse’s unused exemption.

Tax Rate Structure

Connecticut’s estate tax is straightforward:

• A flat 12% tax rate applies only to the portion of the estate above the exemption, after taking into account deductible expenses and the unlimited marital and charitable deductions.
• There is a tax cap of $15 million, meaning the total tax bill (including gift taxes) can never exceed roughly $15 million.

What Property Is Subject to Connecticut Estate Tax?

1. Connecticut Residents: What’s Included

• Worldwide real estate
• Investments, bank accounts, brokerage assets
• Business interests (LLCs, partnerships, corporations)
• Personal property (vehicles, jewelry, collectibles, etc.)
• Retirement accounts and certain life insurance proceeds

Note, however, CT resident estates get a credit for real or tangible personal property located outside of CT. 

2. Non-Residents: What Connecticut Does and Does Not Tax

For non-residents, Connecticut taxes only real estate and tangible personal property located in Connecticut. The tax is calculated using an apportionment formula that applies the estate tax only to the portion of the estate attributable to Connecticut-situs property.

Generally Taxable for Non-Residents

• Connecticut real estate (homes, rentals, vacation property)
• Tangible personal property physically located in Connecticut
• Certain business assets tied to a Connecticut location or operation

Generally Not Taxable for Non-Residents

• Stocks, bonds, mutual funds
• Bank and brokerage accounts
• Life insurance
• Intangible business interests that don’t own Connecticut real or tangible personal property (most LLC or corporate membership interests)

In short, Connecticut subjects residents to estate tax on all assets except for real or tangible personal property located outside of CT, and taxes non-residents on Connecticut-based real or tangible personal property.

The Connecticut Gift Tax

In addition to the estate tax that applies at death, Connecticut has a gift tax on certain lifetime transfers, and both share the same overall exemption. The only state with its own gift tax, Connecticut uses a unified estate-and-gift system where lifetime giving directly reduces the exemption available at death.

Unified Estate & Gift System

Connecticut is one of the few states with its own gift tax. Like the estate tax, it has:

• A lifetime gift exemption equal to the estate tax exemption.
• A 12% tax on all lifetime gifts exceeding that total exemption.

What Counts as a CT Taxable Gift

The following are typically considered gifts for CT gift tax purposes:

• Gifts made by Connecticut residents of any property, except for gifts of real estate and tangible personal property located outside of Connecticut.
• Gifts made by non-residents of Connecticut-sited real and tangible personal property.

However, certain payments are not considered taxable gifts, including:

• Payments made directly to medical providers.
• Tuition paid directly to educational institutions.
• Gifts that do not exceed the annual federal gift tax exclusion amount, so long as the gifts qualify for annual exclusion treatment.

It is important to properly report and keep track of Connecticut lifetime gifts to avoid unexpected estate tax consequences later.

How Lifetime Gifting Impacts Your Estate

Any taxable gifts you make during life reduce the exemption available at death, directly affecting your estate’s tax exposure. Gifting earlier can be advantageous: once assets are transferred, all future growth occurs outside your estate, lowering taxable exposure and letting assets compound for beneficiaries, especially fast-growing investments, real estate, or business interests.

Federal Estate & Gift Tax

Because Connecticut’s tax system interacts with the federal system, it’s important to understand the federal rules as well.

Beginning in 2026, new federal legislation sets the exemption at $15 million per individual (indexed for inflation going forward), rather than allowing it to drop by half as previously scheduled.

Federal Estate Tax Rates

If the estate exceeds the federal estate tax exemption, the excess is taxed at a flat rate of 40%.

Unified Federal Gift & Estate System

The federal government uses a combined exemption for lifetime gifts and estate transfers.

Key components include:

• Tracking cumulative lifetime gifts.
• Annual exclusion gifts (e.g., $19,000 per recipient in 2026).
• Coordinating federal and Connecticut planning to avoid unnecessary overlap or exposure.

Common Wealth-Transfer Strategies to Reduce Taxes

Thoughtful planning can ease the tax burden and protect your legacy.

1. Annual Exclusion Gifts

Regular, smaller gifts can gradually transfer wealth without reducing your lifetime exemption. This strategy is simple, predictable, and effective over time.

2. Irrevocable Trusts

Tools like:

• Irrevocable Life Insurance Trusts (ILITs)
• Spousal Lifetime Access Trusts (SLATs)
• Grantor Retained Annuity Trusts (GRATs)
• Generation-Skipping or Dynasty Trusts

By making gifts to irrevocable trusts, you can remove assets from your estate while still supporting your family or charitable goals.

3. Business & Real Estate Planning

Owners of closely held businesses or real estate may be able to use strategic planning tools like Family Limited Partnerships, valuation discounts, and gifting minority interests to transfer ownership more efficiently. These approaches help reduce the taxable value of transfers while allowing families to pass control and long-term value in a tax-aware way.

4. Charitable Planning

If philanthropy is part of your vision, these options can lower taxes while benefiting causes you care about.

• Charitable Remainder Trusts (CRTs): Provide you or your beneficiaries with income for a set period, with the remaining assets going to charity. Provides a charitable income tax deduction and reduces your taxable estate.
• Charitable Lead Trusts (CLTs): Give income to a charity first for a defined term, after which the remaining assets can pass to your heirs with potential tax benefits.
• Direct Gifts to Charity: Simple donations made during your lifetime that immediately support charitable causes and can reduce your taxable estate.

5. Relocation / Change of Residency

Many retirees or high-net-worth individuals choose to move to states with no estate or inheritance tax, like Florida, Nevada, or Texas. To be recognized, a change in domicile must be supported by actions, documentation, and intent. Clients should consult with SKY and their tax and estate counsel to document and ensure the abandonment of Connecticut residence.

6. Life Insurance for Liquidity

Federal estate taxes are due within nine months of death, but in Connecticut, they are due six months after death. For those who have potential estate tax exposure, life insurance, especially when held in an ILIT, can be a possible source of  liquidity to pay estate taxes without selling important assets under pressure.

Important Administrative Considerations

A strong estate plan also depends on proper maintenance:

• Keep beneficiary designations up to date across retirement accounts, bank accounts, and insurance.
• Understand filing requirements:
  • CT Form CT-706/709 for estate and gift tax or CT Form CT-706 NT (for nontaxable estates)
  • Form 706 for federal estate tax
  • Form 709 for federal gift tax
• File timely to elect federal portability for federal estate tax purposes (not available in Connecticut).
• Remember the 9-month federal deadline for paying estate tax, and the 6-month deadline for Connecticut.

These technical steps can make the difference between a smooth settlement and unexpected tax consequences.

Your Connecticut Tax Planning Strategy

Connecticut’s estate and gift tax system adds complexity to planning, but with the right guidance, families can reduce unnecessary taxes, protect their wealth, and pass assets more efficiently to the next generation.

At Sky IG, we’re dedicated to helping Connecticut families understand their options, make tax-informed decisions, andeducate the next generation about responsible financial planning. Whether you’re starting to think about long-term planning or navigating a current estate, we’re here to help you make the most of your situation.

Contact us to start the conversation.