Connecticut Estate Tax and Portability: The Hazard Married Couples Don't See Coming

Connecticut's estate tax has two unusual features that catch married couples off guard. The first is a significant relief: the 2026 exemption threshold is $15 million per individual — the same as the federal exemption — making the vast majority of Connecticut estates non-taxable. The second feature is a hazard: Connecticut offers no portability of the exemption between spouses.

In the federal system and in many states, when one spouse dies, any unused portion of their estate tax exemption can be transferred (ported) to the surviving spouse. Connecticut does not allow this. An exemption that is not used at the first spouse's death is gone permanently.

What Portability Means — and What Connecticut Lacks

The federal estate tax currently allows a surviving spouse to inherit the deceased spouse's unused basic exclusion amount (DSUE). If a husband dies in 2026 with an estate worth $5 million, he has used $5 million of his $15 million federal exemption and "wasted" the remaining $10 million — unless a portability election is filed on the estate tax return. If that election is made, the wife can add that $10 million to her own federal exemption, giving her a combined $25 million federal shelter.

Connecticut has no equivalent mechanism. When a Connecticut spouse dies with an estate below the $15 million threshold, their unused state exemption does not transfer to the surviving spouse. The surviving spouse retains only their own individual $15 million Connecticut exemption.

For most middle-class Connecticut families, this makes no practical difference — the combined estate will never approach $15 million. But for families with substantial assets — estates in the $5-20 million range, particularly where wealth is concentrated in one spouse's name — Connecticut's lack of portability creates a significant planning problem.

The Unified Gift Tax: Connecticut's Other Unusual Feature

Connecticut is the only state in the country to impose a stand-alone state gift tax. Most states that formerly had gift taxes repealed them. Connecticut did not.

The Connecticut gift tax is unified with the estate tax: taxable lifetime gifts reduce the $15 million exemption available at death. This means:

• Each year, Connecticut residents can make gifts up to the federal annual exclusion amount ($19,000 per recipient in 2026) without reducing their lifetime exemption.
• Gifts above that annual exclusion (taxable gifts) count against the $15 million unified exemption.
• If a Connecticut resident makes $3 million in taxable gifts during their lifetime, their available Connecticut estate tax exemption at death is reduced to $12 million.

The unified system mirrors the federal approach. But because Connecticut is the only state with this structure, Connecticut residents making significant lifetime gifts need to track their Connecticut taxable gift history separately from their federal taxable gift history — they are calculated on the same unified ceiling.

When Connecticut Estate Tax Actually Applies

For estates exceeding the $15 million combined threshold (lifetime taxable gifts plus estate value at death), Connecticut levies a flat 12% estate tax on the excess.

This 12% applies on top of federal estate tax, which can reach 40% on amounts above the federal exemption. The combined marginal rate can exceed 47% for estates that cross both thresholds simultaneously — one of the highest effective combined rates in the country.

Most Connecticut estates will never approach these levels. But for the families that do — particularly those with appreciated real estate in high-value markets like Fairfield County, or successful business owners — the lack of portability creates an avoidable liability.

The Credit Shelter Trust Solution

Before portability was introduced at the federal level in 2010, married couples used credit shelter trusts (also called bypass trusts or AB trusts) to ensure both spouses' exemptions were used. The structure works like this:

1. When the first spouse dies, their estate is divided into two portions.
2. The portion up to the exemption amount goes into a credit shelter trust — it is sheltered from estate tax at the first death and, because it passes into trust rather than directly to the surviving spouse, it is also sheltered at the second death.
3. The remainder (the marital share) passes directly to the surviving spouse, either outright or in a marital trust.

The credit shelter trust effectively "freezes" the first spouse's exemption and ensures it is used at the first death rather than wasted. For Connecticut residents who cannot rely on portability, credit shelter trusts remain essential planning for any married couple whose combined estate is in the range where portability would matter.

The Filing Requirement for Non-Taxable Estates

Even though the vast majority of Connecticut estates are non-taxable under the $15 million threshold, Connecticut requires every estate to file Form CT-706 NT (Connecticut Estate Tax Return for Nontaxable Estates) with the Probate Court within six months of the date of death.

The form confirms the estate is non-taxable and provides the data the court uses to calculate the mandatory probate fee. Missing the six-month deadline triggers 0.5% per month compounding interest on the probate fee — an entirely avoidable penalty.

For estates that exceed the $15 million threshold, Form CT-706/709 is filed instead, with the Department of Revenue Services (DRS), and an exact copy submitted to the Probate Court.

Gift Tax Returns: A Separate Obligation

Connecticut residents who make taxable gifts during their lifetime must file a Connecticut gift tax return (Form CT-709) reporting those gifts and tracking the reduction in their available lifetime exemption. This return is due with the federal gift tax return deadline.

Executors administering a Connecticut estate where the deceased made significant lifetime gifts need to locate prior CT-709 returns to correctly calculate the remaining Connecticut exemption available at death. An executor who does not account for prior taxable gifts may incorrectly assume the full $15 million exemption is available, creating errors in the estate tax filing.

The Practical Takeaway for Connecticut Families

For most Connecticut families, the lack of portability is irrelevant — the combined estate does not approach the threshold where it matters. But for families in the $10-30 million range, or those with significant business or real estate assets concentrated in one spouse's name, Connecticut's lack of portability represents a material planning vulnerability.

The solution is estate planning while both spouses are living — establishing credit shelter trusts, using annual gift exclusions systematically, and structuring asset ownership to optimize both federal and Connecticut exemption usage. Once the first spouse dies, options narrow considerably.

After a Connecticut death occurs, the immediate priority is meeting the 6-month CT-706 NT deadline and administering the estate correctly through the Probate Court. The Connecticut Probate Process Guide covers the complete post-death administration process — including the CT-706 NT filing requirements, the probate fee calculation, and the multi-phase court process — for executors navigating the Connecticut Probate Court system for the first time.

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