Every Maine estate needs to file a Maine estate tax return. But only estates of more than $2 million are required to pay Maine estate tax. This means that some Maine estates that aren’t large enough to owe federal estate tax may still owe an estate tax to the state.
The Maine estate tax rate is much lower than the federal estate tax rate; it tops out at 12%.
Which Estates Must File
All estates must file a state estate tax return, even if no tax will be due. Maine estate tax is assessed on the estates of Maine residents, and also on what nonresidents owned in Maine, including real estate or other tangible items in the state.
As the personal representative of the estate, you will file one of two different Maine estate tax returns:
Estates with an estimated gross value of more than $2 million must file a regular Maine estate tax return, Form 706ME. Deductions may reduce the amount of the taxable estate, so that the estate may not actually end up owing any tax. But if the gross estate is over $1 million, a tax return must be filed.
Estates with an estimated gross value of less than $2 million must file Form 706ME-EZ, a shorter version of the standard form. Why file an estate tax return when it’s clear that no tax will be due? Under the Maine system, it’s necessary to remove an automatic lien on all Maine property, including real estate and tangible items that are physically in the state. A lien is a legal claim on property; you won’t be able to transfer property until the lien is removed and it’s clear that the government won’t be pursuing the new owner for taxes owed by the estate.
Even if the estate is not required to file a federal estate tax return (IRS Form 706), you must complete a “pro forma” version and file it with the correct Maine return. Other supporting documents may also be required.
Calculating the Value of the Gross Estate
When you’re adding up the value of the deceased person’s gross estate, use the date-of-death fair market value of all assets. Count all of the person’s property, including:
- All kinds of bank accounts, certificates of deposit, and investment accounts, including those for which a payable-on-death beneficiary was named
- Real estate in Maine
- Vehicles and other personal property
- Life insurance proceeds from policies on the deceased person’s life, unless that person didn’t own the policy
- Retirement account funds
- Business interests (whether the business was a sole proprietorship, limited liability company, or small corporation)
- Assets held in a revocable living trust (or other trusts the deceased person controlled)
If the person owned any of these assets with someone else, count only the fair market value of the deceased person’s share. For example, if the deceased person owned a house with his wife, half of its value is included in his estate. An exception is property held in joint tenancy with someone else; in that case, the total value is included in the estate except for funds that the other person contributed. For example, the full value of a joint tenancy bank account would be included, unless the other owner actually made contributions to the account.
Also include the value of taxable gifts made within one year of death.
Deadlines for Filing and Payment
The official deadline for filing the state return is nine months after the death, but everyone gets an automatic six-month extension. If you get a longer extension from the IRS, that applies to filing the Maine return as well.
The tax, however, is still due nine months after the death. If the return isn’t done by that date, you’ll need to estimate the amount of tax that the estate will owe and pay it. Interest will accrue on any unpaid amounts.
You can get Maine estate tax returns and instructions at the Maine Revenue Services website.
Property Left to the Surviving Spouse
Property left to the surviving spouse is exempt from both state and federal estate tax, no matter what the amount.
Get Expert Advice
Preparing an estate tax return, whether for the Maine Revenue Service or the IRS, is not a do-it-yourself job. The returns are lengthy and complicated, and you should hire expert help. Get help from a lawyer or CPA (not your regular income tax preparer) who has experience with estate tax returns and procedures.