The Connecticut Transfer Act, which imposes environmental cleanup obligations when certain real estate or business interests are transferred, may create a significant financial burden when ownership changes are made in the course of estate planning or estate settlement. This consequence can be avoided with the astute use of specific exemptions from the requirements of the Transfer Act. 

The purpose of the Transfer Act is to regulate the transfer of (i) certain contaminated properties in the state; or (ii) interests in the entities that own such contaminated properties, by requiring owners to perform environmental remediation when such conveyances meet the definition of an “establishment.”  An establishment includes real property or a business from which approximately one-half of a 55-gallon drum of hazardous waste has been generated in any one month since November 19, 1980, and any dry cleaner or auto body repair shop existing after May 1, 1967. The seller is responsible for the potentially onerous cost of Transfer Act compliance, unless otherwise negotiated. There are, however, many exemptions to the requirements of the Transfer Act that can help avoid this cost and still accomplish inter-familial transfers and business reorganizations.

During one’s lifetime, the following conveyances are exempt from the Transfer Act:

1. Conveyance to a sibling, spouse, child, parent, grandchild, niece, nephew, aunt or uncle;
2. Conveyance to a trustee of an inter vivos trust created solely for the benefit of one or more of the following relatives: sibling, spouse, child, parent, grandchild, niece, nephew, aunt or uncle;
3. Conversion of a partnership or limited partnership to an LLC;
4. Transfer of stock, securities or other ownership interests of less than 40%;
5. Transfer of partnership property held in the names of all of its partners to another partnership that has the same partners as the transferring partnership; and
6. Transfer of partnership property held in the names of all of its partners to an LLC whose members are the same as the partners of the transferring partnership.

Any lifetime gifting or reorganization of ownership for planning purposes should stay within the confines of these exemptions unless it is desirable for remediation to be undertaken at the time of the transfer.  Additional lifetime transfers by a conservator or trustee may also be exempt with the approval of the probate court.

After death, inheritance by way of survivorship tenancy or by will or intestacy is exempt, as is any transfer approved by the probate court. When an estate is being administered, real property or business interests that would otherwise be subject to the Transfer Act should not be moved to an LLC or other entity without probate court approval. In addition, unless the buyer is willing to undertake the burden of Transfer Act compliance, the sale of a business or real property that meets the definition of an establishment should be subject to probate court approval, even if approval is not required by the operative will or trust.

When the transfer of real estate or a business interest is contemplated as part of the estate planning process, care should be taken not to trigger any environmental cleanup obligation. Also, in the course of administering a trust or estate, when property or business interests are sold or transferred to an entity such as a limited liability company, probate approval should be sought to avoid incurring immediate environmental remediation costs.  For more information, please contact a BW attorney.