Accumulating significant wealth takes decades of discipline, smart decisions, and often a degree of risk. Preserving it across generations requires something different: a coordinated legal and tax strategy that accounts for federal law, Connecticut’s distinct tax rules, and the specific structure of your assets.
For many families in Connecticut, the stakes are real. Without intentional high-net-worth estate planning, a meaningful portion of what you’ve built can be transferred to the government rather than to the people and causes you intended.
Understanding the Tax Landscape
Connecticut imposes its own estate tax, separate from the federal tax. For deaths occurring in 2026, both the federal and Connecticut exemptions are set at $15 million per individual.
The federal rate on amounts above the exemption is 40%. Connecticut applies a flat 12% rate on the taxable amount above its exemption.
A married couple with a properly structured estate plan can protect up to $30 million from both federal and Connecticut estate tax. Without that structure, wealth can be taxed twice, once at the state level and once at the federal level, on amounts above the exemption.
One feature of Connecticut law that surprises many families is the absence of portability. Federal law allows a surviving spouse to claim a deceased spouse’s unused federal exemption, essentially doubling the couple’s combined shelter without additional planning. Connecticut offers no equivalent.
Each spouse’s exemption is use-it-or-lose-it. If the first spouse to die has not structured their estate to fully utilize their Connecticut exemption, that exemption disappears. For couples with combined estates above $15 million, this distinction makes trust-based planning not optional but necessary.
Connecticut is also the only state in the country that imposes a state-level gift tax. Lifetime transfers are tracked alongside estate transfers, and both count against the same unified exemption. Gifting strategies must be coordinated carefully with Connecticut’s gift tax rules to avoid unintended consequences.
Tax Efficiency Tools
For estates approaching or above the exemption threshold, the core planning tool is the irrevocable trust. Assets transferred to a properly structured irrevocable trust are removed from your taxable estate.
All future appreciation on those assets also accumulates outside your estate, which can produce significant tax savings over time on assets expected to grow. These are a few of the different types of trusts that are used for estate tax efficiency.
SLAT
The spousal lifetime access trust, commonly called a SLAT, allows one spouse to transfer assets into an irrevocable trust for the benefit of the other. The transfer uses the grantor spouse’s lifetime exemption, but removes the assets and all future appreciation from the taxable estate permanently.
The beneficiary spouse retains access to trust income and principal under defined circumstances, so the couple doesn’t fully surrender economic access to the transferred wealth. For couples looking to lock in today’s historically high exemption while maintaining some flexibility, a SLAT is one of the most practical tools available.
GRAT
A grantor retained annuity trust, or GRAT, is a strategy particularly well-suited to low-interest-rate environments and to assets expected to appreciate significantly.
The grantor transfers assets into the trust and receives back an annuity stream for a fixed term. If the assets outperform the IRS’s assumed rate of return, the excess passes to heirs free of gift and estate tax. GRATs require careful timing and design, but they can transfer substantial appreciation with minimal gift tax cost.
ILIT
An irrevocable life insurance trust, or ILIT, keeps life insurance proceeds out of the taxable estate. Life insurance death benefits are income-tax-free to beneficiaries, but if the insured owns the policy at death, the full death benefit is included in the taxable estate for estate tax purposes.
Transferring ownership to an ILIT eliminates that estate tax exposure while preserving the income tax exemption, ensuring proceeds pass to beneficiaries free of both taxes.
This structure often provides liquidity to cover estate taxes owed on other assets, such as real estate or a closely held business, without forcing a sale.
Gifting Strategies
Annual exclusion gifts remain one of the simplest and most effective tools for gradual wealth transfer. In 2026, each individual can give up to $19,000 per recipient without triggering gift tax or reducing the lifetime exemption.
A married couple can combine their exclusions to transfer $38,000 per recipient per year. Over time, and across multiple recipients, annual gifting can remove substantial assets from a taxable estate without formal trust structures.
For families with 529 education accounts, the super-funding election allows a lump-sum contribution of up to five years’ worth of annual exclusion gifts in a single year, currently up to $95,000 per beneficiary from one individual, or $190,000 from a married couple. The contribution is treated as spread over five years for gift tax purposes.
Direct payments for tuition and medical expenses are not subject to gift tax at all, regardless of amount, as long as they are paid directly to the educational institution or medical provider. These transfers don’t count against the annual exclusion or the lifetime exemption.
Business Interests and Valuation Strategies
For families whose wealth is concentrated in a closely held business, real estate, or a family limited partnership, valuation discounts can significantly reduce the taxable value of transfers.
Minority interest discounts and lack of marketability discounts allow assets to be transferred at values below their proportional share of the enterprise’s fair market value. These strategies require rigorous valuation work and careful documentation, but they remain a legitimate and effective tool for reducing transfer tax exposure on illiquid assets.
Charitable Planning
Charitable giving can accomplish personal and financial goals simultaneously. A charitable remainder trust allows you to transfer appreciated assets, receive an income stream for a defined period, take a partial charitable deduction, and pass the remainder to a qualified charity, all while removing the asset from your taxable estate.
Then there is the charitable lead trust that inverts the structure: the charity receives income first, and the remainder passes to your heirs at a reduced transfer tax cost.
Donor-advised funds offer a simpler entry point. You contribute assets, take an immediate charitable deduction, and recommend distributions to charities over time.
For families with highly appreciated stock or other assets, contributing to a donor-advised fund allows the deduction at full fair market value while avoiding capital gains tax on the appreciation.
Planning Is Ongoing
The federal and Connecticut exemptions are set at historically high levels today, but future legislative changes could lower them. Strategies that work best under a $15 million exemption may need to be reconsidered under a lower one, and vice versa. Structures created years ago under different assumptions may no longer serve their intended purpose.
For high-net-worth families in Connecticut, estate planning is not a document you sign once. It is a coordinated, ongoing process that should be reviewed whenever tax law changes, when asset values shift significantly, or when your family circumstances evolve.
We Are Here to Help!
Our firm can help you create a plan that preserves your legacy, regardless of your resource level. To schedule a consultation at our Westport, CT estate planning office or our other location in Glastonbury, call us at 860-548-1000.
You can use our contact form to send us a message, and you may want to build on your knowledge at one of our monthly estate planning seminars.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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