Connecticut Wealth Goes South

"The state of Connecticut has just released a study of the state's estate tax and its impact on residents," writes Julie Jason in her weekly column. "Residents are fleeing the state, and by doing so, may be having a negative impact on the economic activity of the state."

From 2002 to 2006, Connecticut lost 22,606 households, representing $1.2 billion of income. Over 16,000 households moved to Florida, the state with the largest migration. (Arizona, North Carolina and New Hampshire were next in line.) These household numbers are net losses (subtracting people moving out of the state from those moving in).

The average household income of those moving from Florida to Connecticut was $45,830, while for those moving from Connecticut to Florida was $70,067, representing a net loss of 34.6 percent per household.

State death taxes became a problem as a result of the Bush tax cuts. Besides increasing the exemption from federal estate tax in stages, the 2001 legislation did away with the credit against federal estate tax for state tax paid. As a result, states could no longer levy painless estate taxes – so-called "sponge taxes" that soaked up the amount of the credit without added cost to the families being taxed.

The Connecticut study – you can access it here – includes a helpful summary of how various states have adjusted to the post-sponge-tax era. Connecticut's current estate tax has proved especially irksome to residents. Instead of an exemption from tax, Connecticut merely uses a $2 million threshold:

If a Connecticut resident leaves an estate of $2 million or less, no tax.

If he or she leaves a $2.1 million estate, however, Connecticut tax applies to all $2.1 million. Result: a tax of more than $100,000.

The State study included a survey of Connecticut CPAs and estate and probate attorneys. Most respondents said Connecticut estate tax and/or income tax contributed to client decisions to change domicile.

Average wealth of those changing their domicile to Florida or elsewhere: over $7 million.

Now do you see why Northern Trust has over two dozen offices in Florida?