Connecticut Estate Planning 2026: The State Gift Tax, No Portability, and What Fairfield County Families Must Know

Connecticut holds a unique position in American estate planning: it is the only state in the country that levies both a state estate tax and a state gift tax — unified under a single $15,000,000 lifetime exemption that mirrors the federal amount. Because Connecticut's exemption matches the federal threshold, most families in the $2M–$14M range owe no Connecticut estate tax. But that doesn't mean CT-resident estate planning is simple. There is no portability: a married couple who fails to plan can lose one spouse's $15M exemption permanently at the first death. The state gift tax catches CT residents making large inter-vivos transfers with a 12% flat rate. And for families above $15M — including the many hedge fund professionals, private equity partners, and corporate executives in Fairfield County — CT estate tax at 12% flat applies to every dollar above the exemption. This guide explains the mechanics, the strategies, and the six most expensive mistakes Connecticut families make.

How Connecticut estate tax works in 2026

Connecticut's estate tax is computed on the taxable estate — the federal gross estate minus allowable deductions (marital deduction, charitable deduction, debts, expenses) — that exceeds the $15,000,000 exemption. The rate is a flat 12% on the excess; there are no graduated brackets.²

Unlike Illinois (which uses a cliff structure) or New York (which has a threshold-based recapture), Connecticut uses a clean excess-only model:

• Estate at or below $15M: $0 Connecticut estate tax.
• Estate above $15M: Connecticut taxes only the excess above $15M at 12%. An estate of $17M pays CT estate tax on $2M = $240,000.

Assumes no marital or charitable deductions. For married couples, the marital deduction eliminates estate tax at the first death — but the portability issue means bypass trust planning is still essential. Source: Conn. Gen. Stat. §12-391; Connecticut DRS Form CT-706/709.

The Connecticut gift tax — the unique planning challenge

Connecticut is the only state in the country that levies its own gift tax on lifetime transfers. Every other state that has a gift tax abolished it decades ago. Connecticut kept it — and it creates planning complexity that residents of other states simply don't face.¹

How the CT gift tax works

Connecticut's gift tax uses the same $15,000,000 lifetime exemption as the estate tax. The exemption is unified — every taxable gift you make during life reduces your remaining CT estate tax exemption dollar-for-dollar. The gift tax rate is the same 12% flat rate as the estate tax.²

Gifts that do not count against the lifetime exemption (and are never subject to CT gift tax):

• Annual exclusion gifts: Up to $19,000 per recipient per year ($38,000 with gift splitting between spouses). Unlimited number of recipients.³
• Direct tuition payments: Amounts paid directly to an educational institution (IRC §2503(e)) — unlimited, zero gift tax.
• Direct medical payments: Amounts paid directly to a medical provider (IRC §2503(e)) — unlimited, zero gift tax.
• Charitable gifts: To qualifying organizations — unlimited, zero gift tax.
• Marital deduction gifts: To a US citizen spouse — unlimited, zero gift or estate tax.

What this means for trust-funded strategies

When a Connecticut resident funds a SLAT, GRAT, IDGT, dynasty trust, QPRT, or ILIT with assets above the annual exclusion, those transfers are tracked against the CT lifetime exemption just as they are tracked against the federal exemption. In most states, there is no state gift tax tracking — a CT resident funding a SLAT with $5M files a CT gift tax return (Form CT-709) declaring the transfer, which reduces the remaining CT exemption to $10M. This mirrors the federal filing but is state-specific: Connecticut has its own tracking and return requirement.⁴

The practical implication: for families whose estates are below $15M, the gift tax tracking is largely administrative — they can make large inter-vivos transfers without actually paying gift tax, as long as cumulative taxable gifts stay below $15M. For families above $15M, the gift tax becomes real: transfers above the combined estate-plus-gift exemption are taxed at 12%.

Annual exclusion gifting — the most tax-efficient CT strategy

Because annual exclusion gifts ($19,000 per recipient, $38,000 with gift splitting) are excluded from both the federal and Connecticut gift tax systems, systematic annual gifting is the most accessible planning strategy for CT families at any wealth level.³

A CT couple with three adult children and six grandchildren can give $38,000 × 9 recipients = $342,000/year with no gift tax filing requirement and no reduction in their $15M CT or federal exemption. Over 15 years, that removes $5.13M from the taxable estate — before accounting for growth on the gifted assets.

Unlike states such as New York (which has a 3-year lookback on gifts that exceed the exemption amount), Connecticut has no lookback period for annual exclusion gifts. There is no cliff-based recapture mechanic that penalizes gifting. This makes the annual exclusion the cleanest available tool, particularly for CT families in the $3M–$15M range who want to reduce estate exposure without complex trust structures.

The portability problem — the biggest planning gap for married CT couples

Connecticut does not allow portability. When the first spouse dies, any unused portion of their $15M exemption is permanently gone — it cannot be transferred to the surviving spouse. This means a married couple has a combined exemption of $30M only if both spouses use their individual exemptions efficiently before and at death.²

The cost of ignoring portability in Connecticut

Consider a Westport couple with a combined $22M estate — $14M in David's name (concentrated hedge fund co-investment, ILIT proceeds, real estate) and $8M in Sarah's name (brokerage, retirement accounts, inherited trust). David dies first with no bypass trust:

The bypass trust structure eliminates $2.4M+ in avoidable Connecticut estate tax on a $22M estate — without the family losing a dollar of access, since Sarah is the income beneficiary of the bypass trust under a HEMS standard. This is the central reason married CT couples above ~$10M need irrevocable bypass trust planning now, not later.

Connecticut trust strategies in 2026

Credit shelter / bypass trust (essential for married couples)

A credit shelter trust (also called a bypass trust or B trust) is the foundational planning tool for married Connecticut couples. At the first spouse's death, assets up to the $15M exemption are placed in the bypass trust instead of passing outright to the surviving spouse. The bypass trust assets are excluded from the surviving spouse's taxable estate — they pass estate-tax-free at the second death and don't reduce the survivor's own $15M exemption. The surviving spouse can be the income beneficiary (and principal beneficiary under HEMS standard), retaining practical access.

For Connecticut families in the $15M–$30M range, proper bypass trust drafting at the first death effectively doubles the combined exemption to $30M — the same result that portability gives automatically in states that allow it, but which Connecticut families must engineer deliberately through trust structure.

SLAT (Spousal Lifetime Access Trust)

For families where one or both spouses' estates are growing toward or above $15M, a SLAT transfers assets out of the estate now while the beneficiary spouse retains HEMS access. The transfer uses the CT lifetime exemption (reducing remaining exemption dollar-for-dollar), but removes all future appreciation from the taxable estate. Because CT tracks gift tax use, the SLAT funding is filed on Form CT-709 and reduces the remaining CT exemption — but no CT gift tax is due unless cumulative taxable gifts exceed $15M.

The dual-SLAT reciprocal trust doctrine (United States v. Grace) risk applies in Connecticut as in other states: spouses setting up nearly identical SLATs for each other risk IRS inclusion of both trusts in both estates. Differentiate terms, funding amounts, and timing to reduce reciprocal trust risk.

GRAT (Grantor Retained Annuity Trust)

A zeroed-out GRAT passes appreciation above the §7520 hurdle rate (5.00% for the current period) outside the estate at minimal gift-tax cost — the remainder transferred to heirs is a small gift (often near zero in a zeroed-out structure). CT tracks this as a taxable gift on Form CT-709 but the amount is typically small. GRATs are particularly effective for CT families with hedge fund co-investments, private equity carry, or concentrated stock positions where near-term appreciation is likely to exceed the §7520 rate.

Dynasty trust (avoiding CT RAP limit)

Connecticut allows trusts to run for 90 years before the Rule Against Perpetuities terminates them — sufficient for two to three generations of planning, but shorter than the perpetual trust laws in Nevada, South Dakota, Delaware, and Wyoming. CT residents with dynasty trust goals typically fund a dynasty trust in South Dakota or Nevada (where CT law allows out-of-state trustees to hold assets with no CT-law interference, using Conn. Gen. Stat. §45a-499c). The $15M GST exemption (OBBBA permanent) shields multi-generational transfers from generation-skipping transfer tax.

IDGT installment sale

An intentionally defective grantor trust (IDGT) allows a CT resident to sell appreciated assets to the trust in exchange for a promissory note at the applicable federal rate (AFR: short-term 3.82%, mid-term 4.08%, long-term 4.83% as of May 2026 per IRS Rev. Rul. 2026-9). Because the IDGT is a grantor trust, the sale is not a taxable event (Rev. Rul. 85-13). The seed gift (typically 10% of the note face value) is the only reportable taxable gift, reducing the CT exemption by that amount. All appreciation above the AFR interest rate passes to beneficiaries outside the CT estate. Particularly effective for CT families with PE or RE assets anticipated to compound well above 4–5%/year.

Domicile planning: Connecticut vs. New York vs. Florida

Many Connecticut residents work in New York and have considered whether domicile changes affect their estate tax exposure. Key points:

• CT vs. NY: Connecticut's $15M exemption is dramatically more favorable than New York's $7,350,000 exemption and notorious cliff rule. A Greenwich-domiciled family with a $10M estate owes zero CT estate tax. The same family, if domiciled in New York, would face the NY cliff and a potential $852,000 estate tax bill. CT residents working in NY do not owe NY estate tax on non-NY-situs assets (NY only taxes non-residents on NY real property and business interests).
• CT vs. FL: Florida has no state estate or income tax. Relocating from Connecticut to Florida eliminates CT income tax (top rate 6.99% on CT-source income) and CT estate tax exposure above $15M. Audit risk: CT aggressively challenges domicile changes — the CT DRS looks at driver's license, voter registration, primary physician, club memberships, and days spent in each state. A credible FL domicile requires actual lifestyle anchoring in Florida, not merely buying a home. See our Florida estate planning guide for the full domicile checklist.
• CT situs property: CT real property and CT-business interests are subject to CT estate tax even for non-CT-domiciliaries. A Florida-domiciled family that still owns Greenwich real estate may owe CT estate tax on that property at death — at the favorable 12% flat rate on the excess over their $15M exemption, not the lower FL $0 rate.

Case study: Greenwich hedge fund couple with $22M estate

Michael and Jennifer are Greenwich residents, ages 58 and 55. Michael is a hedge fund partner with $14M in carried interest, co-investments, and fund equity — expected to grow to $25M+ over the next decade. Jennifer has $8M in individually titled brokerage, retirement accounts (IRA and 401k), and inherited assets. Combined estate: $22M. They have two adult children and four grandchildren. No estate planning in place beyond revocable trusts with outright distributions.

Problem without planning: At Michael's death, assets pass outright to Jennifer (marital deduction, $0 CT tax). At Jennifer's death, her estate = $22M (Michael's $14M passed outright) plus projected growth = potentially $35M+. CT estate tax on excess over $15M: $35M – $15M = $20M × 12% = $2,400,000 in CT estate tax.

Planning steps:

• Asset equalization and titling: Move $6M of Jennifer's brokerage into her individually titled revocable trust with a funded bypass trust provision. Move $6M of Michael's co-investments into his revocable trust with a bypass trust provision. Each spouse now has ~$11M individually titled.
• Bypass trust at first death: At Michael's death, $11M funds the bypass trust (uses his CT exemption up to $15M — with $4M remaining to pass outright or to QTIP). Jennifer is income beneficiary. $11M + all future appreciation excluded from Jennifer's estate.
• Dual SLAT: Michael and Jennifer each fund a SLAT with $3M (different assets, staggered by 6 months to reduce reciprocal trust risk). $6M leaves both estates. CT Form CT-709 filed reporting $3M taxable gift per spouse, reducing each spouse's CT exemption to $12M. No CT gift tax due (well below $15M).
• Annual gifting: $38,000/year per adult child and each grandchild ($38K × 6 = $228,000/year). Over 10 years: $2.28M outside the estate, plus growth.
• IRA beneficiary update: Jennifer's IRA ($3M) designates children as direct beneficiaries (with see-through trust provisions) rather than the estate — avoids probate and uses the 10-year rule advantageously.
• IDGT for carry: As Michael's carry matures, $5M is sold to an IDGT in exchange for a promissory note at 4.08% AFR. Seed gift = $500K (5.8% to be safe on leverage). All appreciation above 4.08% passes to trust beneficiaries outside the estate. CT Form CT-709 reports $500K seed gift.

Result: Family's CT estate tax exposure drops from $2.4M+ to near zero. Both spouses retain practical access to assets (SLAT beneficiary and bypass trust income beneficiary). Trust structure and annual gifting created in parallel with Michael's expected PE/hedge fund growth, capturing the assets before they compound further.

6 Connecticut estate planning mistakes that cost families the most

1. Assuming $15M means no Connecticut estate planning needed. The $15M CT exemption matches the federal threshold — so families in the $2M–$14M range don't currently owe CT estate tax. But estates grow. A $10M couple at age 55 with hedge fund carry, real estate appreciation, and compounding brokerage portfolios can easily cross $15M per person by age 75. Waiting until the estate reaches $15M to begin planning means losing years of trust-funded appreciation transfers and annual gifting.
2. Not funding a bypass trust at the first death. Connecticut has no portability. A surviving spouse who inherits the full estate outright — however natural and well-intentioned that impulse may be — permanently forfeits the deceased spouse's $15M CT exemption. For estates heading toward $30M combined, that costs $1.8M+ in avoidable CT estate tax at the second death. The bypass trust preserves both exemptions without sacrificing the survivor's access.
3. Failing to file Form CT-709 for large gifts. Residents who fund SLATs, IDGTs, dynasty trusts, or make other large taxable gifts must file Form CT-709 (Connecticut Gift Tax Return) even when no tax is due. Failure to file means the lifetime exemption usage isn't tracked — creating audit risk and potential disputes at death when the estate is valued. The CT DRS cross-references Form CT-706 (estate) against lifetime Form CT-709 filings.
4. Titling everything as joint tenancy with right of survivorship (JTWROS). JTWROS assets pass automatically to the surviving spouse — which makes funding a bypass trust at the first death impossible. A bypass trust can only receive assets that are individually titled in the decedent's name. For the bypass trust strategy to work, each spouse needs a meaningful amount of individually titled assets before the first death.
5. Thinking the CT gift tax makes large transfers impossible. The gift tax is real but it doesn't trigger until cumulative taxable gifts exceed $15M. For families below $15M, the gift tax is essentially a tracking and reporting requirement — not a cost. Annual exclusion gifts ($19K/$38K per recipient) are completely exempt from both CT and federal gift tax with no reduction in the lifetime exemption. The combined annual exclusion + direct tuition + direct medical exclusions can remove several hundred thousand dollars per year from the estate with no tracking required.
6. Ignoring Connecticut situs for real estate after relocating to Florida. CT families who establish Florida domicile to escape CT income and estate tax sometimes retain Greenwich or Westport real estate for personal use. CT real property remains subject to CT estate tax even for non-CT-domiciliaries — at 12% flat on the excess over the $15M exemption. A $3M Greenwich second home owned at death by a Florida-domiciled family is included in the CT estate tax computation. Either transfer the property to an LLC (which may still be CT situs), use a QPRT to reduce the taxable gift value, or factor the property into the overall estate plan.