Our high income clients in the Pine Tree state have many tax questions. Most of the questions involve business valuations and implementing planning strategies. But what about the Maine estate tax?
In this guide, we will cover the Maine estate tax and also discuss gift tax and inheritance tax. I know taxes can be a little boring, so we will make this as simple as possible. If you have a high net worth, stay tuned.
Table of contents
Maine Estate Tax FAQs
What About the Federal Estate Tax?
The federal estate tax is rather complex. It is often called the death tax. It requires filing tax form 706 which can be over 20 pages long. Make sure you coordinate this with your CPA.
The first step when someone passes away is to get all the information possible regarding their assets. These assets might consist of real estate, brokerage accounts, cars, boats and other assets.
Also, the executor will need to determine retirement accounts and insurance proceeds. Many people don’t realize that even though insurance is not taxable to the recipient, it could be taxable to the estate.
Once the asset review is completed, the executor will be able to deduct mortgages and other liabilities of the decedent. This amount can further be reduced for funeral costs other expenses like legal fees and other professional costs.
The estate tax is then calculated based on a tax rate of 40%. It is only applied to the amount over the lifetime exemption. There is some speculation that the rate will be increased to 45%.
Maine Inheritance Tax & Gift Tax Rates
Thankfully, Maine does not have an inheritance tax. If you received an inheritance from an out of state decedent, the state laws in that state may apply. For example, Pennsylvania imposes an inheritance tax on anyone who receives an inheritance from a Pennsylvania resident who passes away in the state. This is true even if you live in another state.
Also, there is no gift tax in Maine. However, the federal gift tax rules still apply to gifts of more than $15,000.
How to set up a trust
Setting up a trust is an excellent way to ensure that your loved ones won’t have to worry about how your assets are distributed after you pass on. It is especially useful for people with special needs and those who don’t have a lot of experience with financial matters.
By appointing a professional trustee, you can leave your loved ones with peace of mind. If you are unsure of how to set up a trust, here are some helpful tips.
First, consider what you want to accomplish with your trust. Are you planning to leave assets to your children? Or would you like to leave your assets to your grandchildren once they have reached college? You can also set up a living trust for the money to go to a favorite charity and provide installments over many years.
A qualified estate planning attorney can help you plan the best way to make your wishes come true. If you are unsure, consider hiring an attorney who specializes in estate planning and will writing.
The next step is to set up a trust bank account. A trust bank account is the easiest way to fund a trust. Once you have set up a trust bank account, you can then fund the trust and transfer money to your beneficiaries.
It is important to note that listing your assets in a trust agreement is not enough. If you are planning to leave property to your beneficiaries, you will have to transfer the ownership of the asset into the trust.
Tax Structure
Maine has a variety of taxes. Here are the different taxes and the related rates:
- Income tax rates from a low of 5.8% to 7.15%. Capital gains are taxed same as ordinary income.
- Sales tax is 5.5% and local governments do not tack on a local tax.
- The average property tax rate 1.23%. This approximates the national average rate.
