Maine’s Estate Tax May Increase – Are Snowbirds a Flight Risk?

Stan Rose, Director, Tax Practice
June 12, 2019

A proposal to substantially increase the pool of people subject to Maine’s estate tax is working its way through the legislative process, and interested parties may have a shrinking window to make their voices heard by lawmakers. LD 420 is entitled “An Act To Amend the Maine Exclusions Amount in the Estate Tax.” Its text may be found here.

Current law

Greatly oversimplifying, under Maine law, property held by someone at the time of his or her death is subject to Maine estate tax if its combined value exceeds $5.7 million. (This closely parallels federal law, and the laws of several other states, although the current value – including value of certain gifts given away during the deceased lifetime – must be greater than $11.4 million for federal estate tax to apply.) Value exceeding that threshold is taxed (in Maine) at rates ranging from 8% to 12%, generally in addition to applicable federal rates as high as 40%. The tax is assessed not only on liquid assets, like cash, stocks and bonds, but also on real estate and ownership of family-owned and other closely-held businesses that are inherited – whether or not the heirs have ready access to cash to fund the taxes.

Proposed change

LD 420 proposes to drop the exemption amount from $5.7 million to $2 million, causing estates valued at $2 million or more to be subject to Maine estate tax. It also will prevent that amount from increasing with inflation. The changes would impact those dying any time after 12/31/19.

Only three states assess an estate tax at lower values than LD 420’s proposed thresholds. A few states have thresholds somewhat higher, a number of states mirror the federal amount, and more than half of the states (California and Florida for example) currently impose no state estate tax at all. Although there are exceptions, most states assess the estate tax only on residents of that state, leaving “snowbirds” and others who maintain homes in multiple states with some ability to change residency to minimize their income and/or estate taxes. Exceptions for Maine purposes include Maine based real and tangible property, and passthrough entities in Maine (unless deemed by the State to be actively carrying on a business for a profit) – all of which are subject to Maine estate tax regardless of the owner’s state of residence.

Process/status

As this alert is published, Maine’s full legislature has not yet voted on LD 420. As part of proposed legislation’s normal procedure, this bill was assigned to a committee, whose members were charged with developing a recommendation prior to vote by the full legislature. The committee members voted along party lines, and the current status allows (with a procedural hurdle or two) the bill to be voted on by the House and Senate, both of which are controlled by Democrats. This could provide an interesting test for Governor Janet Mills, who promised not to raise taxes as part of her first two-year budget.

As a matter of policy, BNN does not take a stance on political issues. We do, however, assist clients with inquiries into whether their tax burden could be legitimately optimized by changes in residency, and are very much aware that these factors do impact their decisions. We also see the value of consistency, and wish that careful planning was not upended so frequently due to frequent changes in tax laws – federal or state. Maine also is known for its robust social services, so as is the case with anything in life, decisions regarding funding, risk of loss of funding, and fairness with a jurisdiction’s tax structure in general are multifaceted and subjective – and very few choices will make all impacted parties happy. Those who are interested in weighing in on LD 420, pro or con, may use the following links to contact the Governor’s office or their state senators or representatives.

If you have any questions regarding LD 420, please contact your BNN tax advisor at 800.244.7444.

Disclaimer of Liability:  This publication is intended to provide general information to our clients and friends.  It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.