Connecticut is the only state with both an estate tax and a gift tax. Here's why that matters for your parents' planning.

Lifetime gifting is the most reliable estate-planning move in 48 states. A parent gives an adult child the annual federal exclusion amount each year. Over twenty years, that’s several hundred thousand dollars moved out of the parent’s estate without triggering any tax. In Connecticut, the same strategy works — up to the exclusion amount. Above it, something else happens: Connecticut taxes the gift on the way out, and reduces the exemption that would otherwise protect the estate at death.

Connecticut is the only state with both a state estate tax and a state gift tax, and the two share an exemption that tracks the federal exemption ($13.99 million per individual in 2026, approximately).1For families well below the exemption — which is most families — this interaction is academic. For families near or above, it changes the cost-benefit of every lifetime gifting move. This piece walks through how the two taxes connect, the gifts that don’t count, and the four planning considerations for Connecticut families with substantial assets.

The two taxes, one exemption

Connecticut’s estate tax and gift tax operate as a unified system under Conn. Gen. Stat. § 12-391 and § 12-642–643. The structure is:

• A unified lifetime exemption matching the federal exemption (about $13.99M per individual in 2026).
• An annual exclusionmatching the federal exclusion ($19,000/recipient in 2026) below which gifts don’t count toward the exemption at all.
• A flat 12% tax rate on the cumulative taxable transfer above the exemption, applied either at the time of a taxable gift or at death.3
• A $15 million capon cumulative Connecticut estate and gift tax — unique among US states.

The unification matters because lifetime gifts and estate transfers feed into the same calculation. A $1 million taxable gift made in 2026 reduces the exemption available to shield the estate at death by $1 million. In a pure estate-tax-only state, the same gift wouldn’t move the estate-tax math at all (the gift just leaves the estate). In Connecticut, the math follows the gift.

What the annual exclusion does and doesn’t do

The federal (and Connecticut) annual gift-tax exclusion lets a parent give each recipient up to $19,000 per year (in 2026) without any reporting or exemption-tracking consequence.4 A married couple can gift-split, effectively giving $38,000/year per recipient.

For most Connecticut families, the annual exclusion is more than sufficient for ordinary intra-family transfers. A grandparent helping multiple grandchildren with college, a parent helping an adult child with a down payment, the routine cash gifts at weddings and holidays — all fit comfortably within the exclusion when the gifts are paced annually.

What does not fit within the exclusion:

• A large one-time gift— funding a down payment of $300,000 on a child’s home in a single transaction.
• Direct funding of a trust exceeding the exclusion in a year.
• Forgiveness of a substantial intra-family loan— treated as a gift in the year of forgiveness.
• Below-market intra-family sales — the difference between sale price and fair market value is a gift.

The medical and educational unlimited exclusions

Two important exceptions to the gift-tax framework warrant emphasis because they often apply to aging- parent caregiving scenarios:

• Direct payment of medical expenses to the medical provider is not a gift — no dollar limit. A parent paying their adult child’s medical bill directly to the hospital, or an adult child paying their parent’s assisted-living medical-component bill directly to the facility, is not making a taxable gift.
• Direct payment of educational tuition to the educational institution is also not a gift — no dollar limit. A grandparent paying a grandchild’s college tuition directly to the school can do so in unlimited amounts.

The “directly to the provider” element is load-bearing. Giving the cash to the child or grandchild and letting them pay the bill is a normal gift subject to the annual exclusion; paying the bill directly bypasses the exclusion entirely.

What the CT-706/709 return actually requires

When a Connecticut resident makes taxable gifts (gifts above the annual exclusion) in a year, they must file a Connecticut gift-tax return (Form CT-706/709) by April 15 of the following year. The return reports:2

• All gifts to each recipient during the calendar year, segregating annual-exclusion gifts from taxable gifts;
• Aggregate taxable gifts during the year and cumulatively over the donor’s lifetime;
• The applicable unified-exemption remaining;
• Any Connecticut gift tax due (only when cumulative taxable gifts exceed the unified exemption).

For the typical Connecticut family, the return is a tracking exercise — no tax is due, but the state needs the lifetime-gift history on file to calculate the estate tax correctly at death. Skipping required returns is a meaningful problem because it leaves the exemption history unclear; the Connecticut Department of Revenue Services may challenge claimed remaining exemption at the estate-administration stage.

The Connecticut estate tax: what it actually taxes

The Connecticut estate tax applies to the worldwide estate of a Connecticut domiciliary at death, less:5

• Liabilities and administrative expenses (standard estate-administration deductions);
• The marital deduction (no tax on transfers to a surviving spouse);
• The charitable deduction (no tax on transfers to qualified charities);
• The remaining unified exemption (the lifetime exemption minus the cumulative taxable gifts).

The taxable estate above remaining exemption is taxed at a flat 12%, capped at $15 million in total Connecticut estate and gift tax.

Worked example: a $20 million Connecticut estate

Consider a Connecticut resident who dies in 2026 with a $20 million estate (no spouse, no charitable bequests, no lifetime taxable gifts).

• Gross estate: $20 million
• Unified exemption: ~$13.99 million
• Taxable estate: ~$6.01 million
• Connecticut estate tax at 12%: ~$721,000

If the same resident had made $1 million of lifetime taxable gifts during their lifetime, the remaining unified exemption would be reduced by $1 million (to ~$12.99 million), and the taxable estate at death would be $7.01 million, producing ~$841,000 in estate tax. The $1 million gift moved out of the estate — but it cost the family ~$120,000 in additional Connecticut estate tax because of the unified-exemption interaction.

That’s the analytical point. In a state without a gift tax, the $1 million lifetime gift would have saved the same amount because the gift would have escaped state estate-tax exposure. In Connecticut, the unified system means the gift doesn’t escape; it just moves through the gift-tax channel rather than the estate-tax channel. The total state tax bill is unaffected.

Where lifetime gifting still works in Connecticut

Despite the unified structure, there are several contexts where lifetime gifting still produces a Connecticut tax benefit:

1. Future appreciation moves out of the estate

A $1 million gift in 2026 of an asset expected to appreciate to $2 million by the donor’s death locks in the gift value at $1 million for unified- exemption purposes. The $1 million of post-gift appreciation accrues to the recipient and is outside the donor’s estate. For high- appreciation assets (closely-held business interests, growth-stage stock, real estate in a hot market), this remains a powerful planning move even in Connecticut.

2. Annual-exclusion gifts

Annual-exclusion gifts (below $19,000/recipient in 2026) don’t touch the unified exemption at all. A grandparent gifting the annual exclusion to multiple grandchildren each year over many years can move significant assets out of the estate without any reporting consequence.

3. Direct medical and tuition payments

As noted earlier, direct payments to providers (no dollar limit) are not gifts. A grandparent paying a grandchild’s graduate school tuition directly to the institution can move tens or hundreds of thousands of dollars out of the estate per child per year.

4. The federal-state arbitrage at high estate levels

For very large estates, the $15 million Connecticut cap interacts with the federal estate-tax structure in a way that can favor lifetime gifting. Above the cap, additional Connecticut estate tax stops accumulating — but additional federal gift tax does not (federal gifts are taxed at progressive rates up to 40%). The optimal strategy at these asset levels is highly specific to the family and requires sophisticated counsel.

The four planning considerations for Connecticut families

1. Annual exclusion as the workhorse. For most Connecticut families with substantial but not enormous assets, the annual exclusion ($19,000/recipient/year in 2026, or $38,000 for gift-splitting spouses) does most of the meaningful estate-reduction work without any reporting consequence. Use it consistently year over year.
2. Direct payments for medical and education.If your parent is paying grandchildren’s tuition or family medical expenses, structure the payments directly to the provider rather than to the grandchild or family member. The unlimited exclusion is one of the most powerful tools in the box.
3. Track every taxable gift in writing. If a Connecticut resident makes a gift above the annual exclusion, the CT-706/709 needs to be filed even when no tax is due. Maintain a running ledger of lifetime taxable gifts. The estate-administration process depends on this record.
4. Don’t over-gift below the exemption. Because Connecticut taxes estates above the federal-matching exemption, and because lifetime gifts and bequests share the exemption, families well below the threshold ($5M, $10M of assets) usually have no Connecticut-tax reason to accelerate gifting beyond annual-exclusion levels. The unified system means the savings would only materialize at much higher asset levels.6

The domicile question matters more in Connecticut

Connecticut taxes its residents’ worldwide estate. A Connecticut domiciliary with property in Florida, Vermont, and the Cayman Islands is taxed on the entire estate by Connecticut. A non-domiciliary who owns real estate in Connecticut is taxed only on the Connecticut real property.

This creates a sometimes-meaningful incentive for families with substantial assets and weak ties to Connecticut to consider domicile changes. The domicile question is a fact-and-circumstances inquiry — physical presence, driver’s license, voter registration, the location of the primary residence, social and business connections. A casual domicile change (Florida driver’s license, keeping the Connecticut house and primary life there) doesn’t survive Connecticut Department of Revenue Services scrutiny. A genuine one does.

The bottom line

Connecticut’s combined estate-and-gift tax is a well-designed instrument from the state’s perspective: it captures wealth transfers at either the gift or the estate stage, so no lifetime-gifting strategy can route around it. For most adult-child caregivers in Connecticut, with parents below the federal-matching exemption, the tax doesn’t touch the planning. For families above the exemption, the planning conversation needs to start with a Connecticut estate attorney who understands the unified-exemption mechanics and the $15 million cap. The wrong move — a large lifetime gift made without modeling the Connecticut consequence — can shift hundreds of thousands of dollars between family and state. The right move usually involves the boring, consistent use of the annual exclusion and the unlimited medical/educational exclusions over a long horizon.