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John Whalen, PA

gift tax

estate-gift taxesMaine Estate-Gift Taxes

Will your family be subject to Maine estate-gift taxes when you die?  Maine is one of the few states which continue to have an estate tax.  Being married may help you avoid or defer it.

The Maine Estate-Gift Taxes, on those estates which are taxable, are at rates which range from 8% to 12%.  While this tax is credited against the federal estate tax, because of the differing exemption levels, the Maine estate tax might get imposed even though there is no federal tax.

The federal estate tax is a “gross up tax.” This means that it looks at the total value of gifts during life together with the value of assets held by the decedent at death to establish the value of the taxable estate.  This tax scheme has recently been modified with a broadening of the amount of the exemption, but with an increase in the maximum tax rate imposed upon those estates which are taxable.  Under current law, the life time exemption is index to inflation.  It began at $5,000,000.00 and rose to $5,250,000.00 last year. It should continue to rise with inflation.  The maximum rate on estates which are taxable is 40%.

The State of Maine can impose a tax only on estates of individuals who were residents of Maine on the date of death or estates which hold property in Maine which includes real estate, personal property, such as vehicles, and intangible assets, bank accounts, stock, etc.  In Maine, an estate which has a value in excess of $2,000.000.00 is taxable.  While this number may initially appear big, remember this tax not only is on items owned at death; but also, items where a benefit is paid due to death such as life insurance.  So, it can very well be that while there may not be a tax at the federal level, one will be imposed at the state level.  Marriage can allow a couple to avoid and/or defer that tax.

Unlike any other arrangement, couples, who join in a marriage recognized by Maine, are allowed under both the laws of Maine and the federal government to make unlimited gifts to each other and to join with each other in making gifts to others.  This allows the couple to equalize their estates by the one with fewer assets transferring assets to the other spouse.  Also, by combining on estate gift tax returns, they equalized the cost of the gift which can either avoid a gift tax or reduce its impact.  The result is a married couple by gifting between each other and to others can greatly impact the tax on their total estate.  Since the tax is imposed as of the date of each partner’s death, this provision in the tax law avoids a tax result governed by the date of either spouse’s death.  It can even result in no tax ever being paid with proper planning.  Unmarried couples cannot do this.

Another advantage of marriage is a provision called the “marital deduction”.  Under both federal and Maine state law, property which one spouse receives or obtains control over from the other spouse is deducted from the total value of the estate of the first to die.  The idea behind that law is the tax is only deferred.  When the second spouse dies, assuming that spouse has not remarried, a tax is collected upon those assets.  But, even the impact of that tax can be avoided or limited with proper estate tax planning.  By using an estate plan which utilizes both the exemption and the marital deduction, a married couple can pass substantially more onto future generations that can a single person.

In future articles we look more closely at how a couple can plan their estates to limit or avoid the impact of the estate or gift tax.  For now, it is suffice to say, if you have recently been married, or if married have not updated your estate plan,  please consider giving us a call.