With Tuesday’s override of Governor LePage’s veto of Maine’s 2016-2017 budget, the Legislature has approved a significant change to the state’s estate tax law. The Maine estate tax exemption amount for individuals dying in or after 2016 is now pegged to equal the federal estate tax exemption. Currently, the federal exemption amount is $5.43 million (as indexed for inflation), more than double the current Maine exemption of $2 million.
For estate dollars above the exemption amount, if the value of the decedent’s Maine taxable estate is:
- Between the exemption amount and $3 million more than the Maine exemption amount, the tax is 8%
- Between the exemption amount plus $3 million, and the exemption amount plus $6 million, the tax is 10%
- Over the exemption amount plus $6 million, the tax is 12%
In recent years, many Maine individuals and couples with net worth below the federal exemption amount have been establishing trusts, making gifts, and otherwise structuring their estate plans to minimize state estate tax. This latest increase, then, is a welcome development for those with taxable estates above $2 million but below $5.43 million.
However, notwithstanding this increase, a key estate planning message remains. As this latest development illustrates, tax laws can, and do, change -- and not infrequently. The best estate plan is built to weather fluctuations in applicable exemption amounts. Estate plans that incorporate credit shelter trusts and disclaimer options are designed to fully utilize available exemptions whether they rise or fall at the will of Congress or the State Legislature.
Moreover, while federal law now permits a surviving spouse to add the deceased spouse’s “unused” exemption to the survivor’s own available exemption (called “portability”), Maine does not provide for portability of unused Maine exemption. For couples with net worth approaching taxable levels, credit shelter trust planning may still be the best way to preserve available exemption after the first death.
In general, when tax laws change significantly, it is wise to revisit your estate plan to confirm that it continues to reflect your current objectives. You may find that, with this exemption increase, your estate plan could be simplified. Or for you, estate tax minimization may remain an important objective. For nearly all clients, regardless of net worth, non-tax objectives will continue to require careful consideration and implementation.