You can’t take it with you or leave it
State’s high inheritance tax sends some packing
As Connecticut officials peer nervously into a deepening abyss of budget deficits, the estate-tax “cliff” may not be crumbling any time soon.
Legislators kick off a two-year legislative session in January, the first since a February study by the Connecticut Department of Revenue Services (DRS) that detailed the migration of wealthy residents south to escape the state’s stiff inheritance taxes.
Critics argue that the tax creates a potential burden for small business owners in transferring assets after death to family members; and creates an incentive for residents to relocate to states lacking estate taxes, such as Florida. They also say Connecticut could recoup at least some of the revenue through taxes on investment income generated by wealthy individuals in their retirement years.
Under Connecticut law, no tax is owed if an estate is valued at $2 million or less. Go one dollar above that mark, however – derisively termed the “cliff” by some critics – and the state assesses the entire estate with a 5.085 percent tax that escalates on a sliding scale to 16 percent for estates valued at more than $10.1 million.
The Connecticut Office of Policy and Management estimates that in eliminating the cliff and taxing only wealth above the $2 million mark, the state would lose $30 million in revenue annually on average.
In a study published last December, the Economy.com division of Moody’s found that states lacking estate taxes had 2 percent growth in employment and 6 percent growth in personal income, compared to 1 percent and 5 percent respectively for states with death taxes on the books.
Two months afterward, DRS issued findings that 27,800 households relocated from ConnecticutFlorida between 2002 and 2006. In a poll supporting the study, attorneys told DRS that slightly more than half of those who moved pegged their decision to leave squarely to the inheritance tax, with another quarter saying it played a factor in their decision, along with weather, income taxes, cost of living and a wish to be near family and friends in the south. to
The tax affects about 1 percent of the people who die in Connecticut each year, according to DRS calculations.
“We have heard some politicians … allege there are no folks moving because of the estate tax,” said one unidentified attorney responding to the survey. “I can tell you that the estate tax was the last straw for some; they moved their business and their family. These are younger folks not ready for retirement.”
The clients mentioned would have been hit with an average estate tax of $700,000.
Inheritance tax collections dipped slightly last year to $170 million; nearly two thirds of that amount was levied on more than 30 estates that were each appraised at $10 million and above. For the year, roughly 280 estates with net assets of $2.8 billion were hit with the tax.
Add Comment
0 Comments