Estate Tax Basics: 2025 Federal & Connecticut Thresholds Explained
Estate taxes might not be the most exciting topic — but understanding them can make a massive difference in what your family keeps versus what goes to taxes.
Here’s what every Connecticut resident should know for 2025 and beyond:
Federal Estate Tax
For 2025, the federal estate tax exemption is $13.99 million per person (or $27.98 million per married couple through portability). That means your estate can pass up to that amount tax-free at death, with only the amount above it taxed — at rates up to 40%.
And due to recent legislation (“The One Big Beautiful Bill Act”), these higher exemption levels are now permanent, indexed for inflation, and expected to rise to about $15 million per person in 2026.
Connecticut Estate Tax
Connecticut is one of the few states with its own estate tax - yay... The exemption here also sits at $13.99 million per person in 2025, matching the federal level — but with a flat 12% tax rate on estates above that threshold. Unlike the federal system, Connecticut does not allow portability, meaning a surviving spouse cannot automatically use a deceased spouse’s unused exemption.
Reducing Your Taxable Estate
While annual and lifetime gifting are key tools, they’re not the only ones you can use to reduce your taxable estate. Other strategies include:
Irrevocable Trusts: Move assets out of your estate while maintaining control and protecting from creditors or Medicaid spend-down rules. (remember the 5-year look back period!)
Charitable Trusts or Donor-Advised Funds: Support causes you care about while reducing your taxable estate.
Family Limited Partnerships (FLPs): Transfer business or investment interests to family members at discounted values for tax purposes.
Life Insurance Trusts: Keep large insurance proceeds out of your taxable estate while providing liquidity for heirs to pay estate taxes.
Each approach carries unique benefits and tradeoffs — the right mix depends on your goals, family structure, and long-term financial plan.
Why It Matters
Even if your estate is below the exemption today, rising asset values and inflation can push more families into taxable territory over time. With Connecticut’s flat 12% estate tax layered on top of the federal system, coordinated planning — across trusts, gifting, and business structures — becomes even more important.
A smart plan today can mean millions in tax savings tomorrow — and a far smoother transition for your family.