Lawmakers Want to Make Dying Less Costly in Connecticut

April 7, 2016

Hartford– After approving the highest death fees in the land last year, legislators and Gov. Dannel P. Malloy are retreating, saying the state must act to prevent aging wealthy residents from taking their fortunes out of Connecticut.
Part of that effort involves backing Malloy’s plan to cut probate fees for the largest estates, which will be part of the state budget package in the coming weeks as lawmakers try to close a deficit projected at nearly $900 million for the fiscal year that starts July 1.

Probate administrator Paul Knierim says the increase has prompted some millionaires to flee the state and has forced others to think about leaving. As a result, Knierim is backing the new plan to reverse course and install a sliding scale with a maximum rate of $40,000 in fees per estate. That would cut and cap the fees for all estates of more than $8.8 million.
Currently, there is no maximum, and huge estates can pay more than $1 million in probate fees.

“If significant numbers of wealthy residents do relocate, the higher probate fees on estates will ultimately be self-defeating as a source of revenue for the probate courts and may also depress revenue from other state and local taxes,” Knierim said. Some view the recent probate fee hike as “the last straw” in pushing them out of the state — and increases the urgency for the legislature to reduce the fees by changing the law once again, he said.

The fee-cut proposal comes at a time when new data from the state comptroller shows that the top 2 percent of Connecticut tax filers are paying nearly 40 percent of the state income tax. With large tax increases in 2011 and 2015, Connecticut has become increasingly reliant on a tiny handful of the richest residents to pay large portions of the overall tax bill.

Democrats and Republicans have argued for years over whether Connecticut has reached a tipping point where income, estate and other taxes have reached levels high enough that they would force rich residents to flee to states like Florida, which has no income tax and no separate estate tax. On the probate fees, Knierim says that Connecticut has now reached that point.

The biggest reason for the recent increase in the deficit, legislators said, was a slowdown in the portion of the state income tax that is paid largely by small business owners, millionaires and billionaires.

State statistics show that 67 percent of the so-called “estimates and finals payments” — which are non-withholding income tax payments sent in directly by taxpayers — are paid by only 0.7 percent of the population, which covers tax filers earning $1 million or more.
The probate fee cap, which would apply to anyone who dies after July 1, requires approval by the full state House of Representatives and Senate. The measure took a major step forward last week with bipartisan approval in a 50-0 vote by the tax-writing finance committee.

Sen. Beth Bye, the co-chairwoman of the legislature’s budget-writing committee, said people move for a variety of reason, such as better weather and family, and not merely for tax reasons.

“There’s all kinds of different ways to evaluate who is going and who is staying,” Bye told Knierim during a recent hearing. “Those numbers are what they are, but they don’t tell the whole story.”

The debate comes at a time when Connecticut is facing as many as 2,000 state-employee layoffs in order to help close the projected deficit, which could hit $900 million next year and go beyond $1.7 billion in the following years.

Sen. L. Scott Frantz, a Greenwich Republican who serves on the tax committee, says that three billionaires with a combined net worth of $21.5 billion have indicated they are pulling up stakes in recent months. The billionaires can still keep their homes in Greenwich, but they can establish residency in Florida if they live there for more than six months per year. Frantz has refused to reveal their names.

“The tax base is disappearing,” said Frantz, who is himself a millionaire investor. “Florida is essentially a tax-free state.”
Until January 1, 2015, the highest probate fee on any estate was $12,500. That jumped suddenly for anyone who died on or after that date. If the proposed revisions are passed, fees would be capped for any estate above $8.87 million.

A database of all probate cases in Connecticut shows that 37 residents died with estates above $8.87 million in 2015, and 35 were above that level the previous year.

At a recent finance committee meeting, lawmakers debated over relocation decisions made regarding the estate and other taxes.
“This is something I hear all the time, and I see it all the time. This is happening,” said Rep. Terrie Wood, a Darien Republican. “People are leaving the state. We need to see what we can do and change this paradigm.”

But Rep. Russ Morin, a Wethersfield Democrat, countered that Republicans are overstating the problems with taxes and promoting too much gloom and doom.

“I would question any of my colleagues on this committee who send their children to public schools: Would you prefer to send your children to public school in Florida, Mississippi, South Carolina, Texas or Connecticut? I would say people are going to say Connecticut,” Morin said. “Many people are leaving because they get older. They go down south because they like the climate. They like to play golf a lot. They’re going for a whole host of reasons.”