Connecticut’s government continues to struggle with the economic, political, and social ramifications of the state’s growing budget deficit. In July, the deficit for the 2015-2016 fiscal year ending June 30 was estimated at $279 million. This pales in comparison to the current estimates for the 2016-2017 fiscal budget deficit, which now run to $1 billion – an eye-watering number by any measure. Not only is this an impressive number of commas, but it is an incredibly steep year-over-year trend.
One immediate consequence of this yawning revenue-expense gap was the state legislature’s little publicized moves to impose materially higher probate filing fees on Connecticut decedents. These filing fees are meant to cover the administration and filing of an estate tax return. The first change dates to July 2015, when Connecticut’s legislature voted to alter the $12,500 probate filing fee cap to a formula calculated on the taxable size of an estate. Overnight the upper limit soared to $20 million – that’s not as typo – and for several estates in the midst of probate this $12,500 fee metamorphosed into hundreds of thousands of dollars.
Those who were affected protested vociferously. In spite of the immediate and constant backlash from trust and estate attorneys and their clients, it took until July of this year for the legislature to reduce the probate filing fee cap to $40,000. While this new cap is magnitudes less than last year’s changes, it is a 220 percent increase over $12,500.
Perhaps of greater concern is what this behind -the -scenes meddling says about the state legislature’s persistent guiding philosophy for attempting to close the revenue-expense chasm. As more and more of Connecticut’s wealthiest residents flee for states with no or reduced income and estate taxes, it is difficult to understand how a viable salve to the state’s fiscal woes exists in providing to Connecticut’s wealthiest residents yet another reason to run for the door (or Interstate 95 South).
The über-wealthy’s hundreds of millions of dollars in state income taxes represent a substantial portion of the state’s revenue. All Connecticut residents benefit from the infrastructure and services these monies fund, and we all lose something, regardless of how immediate or direct that loss is, when wealthy individuals choose to leave. Among other things, missing revenue causes legislatures to look elsewhere, which always translates into new schemes to generate revenue from those farther down the income ladder. These are the “trickle down” effects we all wish to avoid.
For these reasons, even those not earning gargantuan sums ought to remain aware of the budgeting and legislative gymnastics ongoing in Hartford. Understanding how taxes levied affect short- and long-term consumption and investment should be a major a component of every legislature’s calculus. Such appears to be absent in Hartford.
On an individual level, a tax professional and wealth advisor should be able to help you chart a course favorable to the specifics of your situation.
Rob Longsworth is a wealth adviser at Greenwich Wealth Management LLC in Greenwich. He can be reached at email@example.com or at 203-618-0105. Advisory services offered through Greenwich Wealth Management LLC, an SEC Registered Investment Advisor. Securities offered through Private Client Services, Member FINRA, SIPC. Greenwich Wealth Management and PCS are unaffiliated entities.