On June 30, 2015, the Maine legislature passed a $6.7 billion biennial budget that significantly altered Maine’s estate tax law, bringing it more in line with that of the federal government. This new budget sets the state estate tax exclusion at $5.45 million, effective January 1, 2016. This more than doubles the previous state exclusion of $2 million. This may mean you have an overly complicated estate plan that could be unnecessarily burdensome to your beneficiaries.

Many Mainers completed their estate plans 10, 15, or even 20 years ago when both federal and state estate tax exclusions were much lower. For example, in 2001, the federal and state exclusion was $675,000 with a top federal estate tax rate of 55%. At this level, many individuals and families found themselves facing stunning estate taxes upon the loss of a loved one. Many were forced to dissolve family businesses or liquidate farms or legacy real estate holdings to pay the taxes. In response, pro-active individuals and families worked with attorneys to craft elaborate estate plans using trusts and lifetime gifts to avoid onerous estate tax consequences. Finally Congress responded with legislative change, and throughout the early 2000’s the federal estate tax exclusion level was raised annually. The federal estate tax was repealed in 2010 and reinstated in 2011 with a $5 million exclusion that would henceforth be annually adjusted for inflation. The 2016 exclusion is $5.45 million for individuals and $10.9 million for married couples. In 2011, the Maine legislature voted to decouple from the federal estate tax exclusion levels. The state estate tax exclusion remained at $1 million until 2011 when it rose to $2 million. As of January 1, 2016, we are back in line with the federal estate tax exclusion of $5.45 million.

Some important differences between the federal and state estate tax laws remain. The “portability” of the unused federal estate tax exemption to the estate of the second spouse to die was not adopted by the Maine legislature. Thus, couples having a combined net worth close to or exceeding $5.45 Million may still wish to make lifetime gifts, establish trusts, and employ other techniques focused on reducing their state estate tax burden. However, for many, the need for such arrangements has diminished.

Please note that we used the term diminished and not vanished. Why? There are many reasons individuals and families employ lifetime gifting, trusts and other estate planning arrangements.
For example, estates of non-U.S. citizens are not treated as favorably as those of U.S. citizens. A different body of law applies, resulting in a continued need for careful planning. There are also many non-tax related reasons why trusts and other vehicles remain appropriate in estate plans to help guide surviving family members (especially young and/or vulnerable ones), and to provide for ensuing generations.

To conclude, the increase in the state exemption has rendered some Mainers’ estate planning efforts to minimize their state estate tax burdens superfluous and unnecessarily burdensome. If it is likely that the value of your estate will be greater than $2 million but less than $5.45 million, you may find yourself in this boat and it would be a good idea to contact your estate planning attorney for a review.