Maine Estate Tax Planning for Non-residents Owning Maine Property

We frequently advise summer residents of Maine who are domiciled in other states about the application of the Maine estate tax. Often our clients are surprised to learn that, even though they are not Maine residents for income tax purposes, the Maine estate tax will apply to any real estate or tangible personal property (such as the furniture and other contents of a vacation home, boats, RVs, automobiles, etc.) located in Maine. When the owner dies, there is an automatic lien on the Maine real estate and tangible personal property of the decedent. This lien can only be discharged by filing a Maine estate tax return. A short form is available for estates that are well below the exemption amount.

The following is a general, simplified explanation of how the Maine estate tax works in 2024 (per Form 706ME). The first $6.8 million of a resident decedent’s estate is exempt from estate tax. [Note: it may still have to pay income tax, which is a different type of tax calculation.]  The tax is 8% on the amount between $6.8 million and $9.8 million; 10% on the amount between $9.8 million and $12.8 million, and 12% on the excess. For a nonresident decedent, a pro-forma federal Form 706 is required, showing all the property of the decedent, wherever located, which is subject to the federal estate tax. The Maine estate tax is calculated as if all the decedent’s property shown on the pro-forma 706 were taxable by Maine, applying the $6.8 million exemption. Then, using the asset values shown on the pro-forma 706, the percentage of the nonresident decedent’s taxable estate which is Maine real estate and tangible personal property is multiplied by the Maine estate tax on the entire estate to determine the actual Maine estate tax due on the nonresident’s estate.

For example, assume a 2024 non-resident decedent has an $11 million estate, $1 million of which is Maine property. The Maine estate tax on a resident estate would be 0% of the first $6.8 million ($0); 8% on the next $3 million ($240,000); and 10% on the remaining $1.2 million ($120,000); for a total estate tax obligation of $360,000. Maine property is 9.1% of the entire estate, so the Maine estate tax is 9.1% of $360,000, or $32,760.  (Hopefully the Maine property is not also taxed in the state of the decedent’s residence.)

Tax Trap for the Unwary: There may be a Maine estate tax liability on Maine real estate owned by a nonresident couple when the first spouse dies, even if they owned the Maine property as joint tenants and may have expected that the marital deduction would avoid the Maine estate tax. The marital deduction from the Maine estate tax is only available by making a Maine QTIP election. Nonresidents who own property in Maine need to include Maine-specific provisions in their estate planning documents to avoid or minimize the amount of Maine estate tax due.

The Maine Estate Tax also applies to personal use (as opposed to business use) of Maine real estate and tangible personal property owned by a nonresident decedent through a trust, limited partnership, LLC or similar legal entity. Owning the Maine property through an entity does avoid probate, which can save the estate considerable time and money. It does not, however, avoid the Maine estate tax in most cases.

Maine does not have a gift tax, although the value of gifts in excess of the federal annual exclusion, if made within one year prior to death, is included in the decedent’s estate. (This looks like a gift tax, but that’s not what our Legislature chose to call it.) The takeaway is to begin or continue gifting the Maine property to the children or other desired beneficiaries, and, if the donor has any reason to suspect a reduced life expectancy, to make the gifts as soon as possible. There are many factors other than taxes that should be considered before making major gifts, and no major gifts should be made without the advice of a competent estate planning lawyer.

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The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless agreed to in writing. Please contact us to discuss your particular situation