Transfer Taxes

Transfer taxes are different from and in addition to income taxes. There are three separate and distinct types of transfer taxes imposed on you or your estate that can substantially diminish the enjoyment you intend for your beneficiaries. The three types are gift taxes, estate taxes and generation-skipping-transfer taxes. You can reduce or eliminate these taxes with planning and now before death or incapacity removes the opportunity to do so.

Gift Taxes. Both the federal government and the state of Connecticut tax gifts. Tangible property you own in other states may also be subject to a gift tax imposed by the state in which the property is located. Currently, gifts that qualify for annual exclusions and gifts you make to your spouse are not subject to either the federal or Connecticut gift tax and do not require you to file gift tax returns. Annual exclusion gifts include those made to any one beneficiary each year that do not exceed $14,000 (2014) in value and gifts to a spouse in any amount. In addition you can gift unlimited amounts by the direct payment of medical and educational expenses for a chosen beneficiary. You and your spouse can double the annual, per donee exclusion amount by electing to treat gifts of either as joint gifts on returns filed by April 15 of the year following the year in which the gift is made. Gifts that exceed the annual exclusion amount, qualified medical payments and qualified educational payments can qualify for a lifetime exclusion of up to $1,000,000 provided you file federal and Connecticut gift tax returns. Taxable gifts generate federal gift taxes of 35% of the value of the taxable gift and Connecticut estate taxes up to 16% of the value of the taxable gift.

Estate Taxes. Both the federal government and the State of Connecticut impose a tax on the transfer of the estate of a deceased person which exceeds certain exemption levels.  Those levels are currently $5,340,000 for federal estate tax purposes in 2014 and $2,000,000 for Connecticut estate tax purposes.  Beginning January 1, 2011, estates of decedents survived by a spouse may elect by the timely filing of a federal estate tax return, to transfer any of the decedent's unused federal estate tax exemption to the surviving spouse.

Generation-Skipping-Transfer Taxes. Both Connecticut and the federal government have designed generation-skipping-transfer (GST) taxes to tax assets passing to grandchildren or other young beneficiaries in order to make up for gift or estate taxes that would otherwise be collected by gifting to a child (parent of the grandchild) or other beneficiary when the child or other beneficiary gifts or dies. The application of this tax is complex and requires competent professional planning.  Transfers subject to the federal GST tax are taxed at a 55% rate. To the extent that the federal government allows a credit against its tax, Connecticut taxes an amount sufficient to use up that credit.