LD 420 Would Increase Maine’s Estate Tax

By Ally Brophy March 4, 2020

March 5 update:  Although some votes by absent committee members remain outstanding, the Committee on Taxation is expected to recommend that this bill be considered by the full legislature. We will update you as more is learned.

Carried over from the Maine legislature’s previous session, lawmakers are considering a bill that would significantly increase the amount of a decedent’s estate that is subject to Maine’s state-level estate tax.  LD 420, “An Act To Amend the Maine Exclusion Amount in the Estate Tax” is currently in the hands of the legislature’s Committee on Taxation, a precursor to potential consideration by the House and Senate.

If passed, LD 420 will reduce the amount of an estate’s value that is excluded from estate tax from $5,800,000 to $2,000,000, effective for deaths occurring on or after January 1, 2020.  It also would remove the current law’s inflation adjustments, thereby permanently locking the amount at $2,000,000.  This proposed legislation would have no impact on the federal exclusion amount, which currently is $11,580,000, indexed for inflation, but scheduled to revert back to $5,000,000 in 2026, adjusted for inflation.

Example:  Let’s look at an example of how the change would impact a hypothetical taxpayer.  Assume Jane Doe passed away in early 2020.  Jane was retired, and her primary sources of income were IRA distributions, Social Security payments, and dividends received from a business owned by her and her sons.  Her sons run the family business, and Jane’s will leaves the entirety of her estate to her sons and names them as co-executors of her estate.  The value of her estate and the Maine estate tax computed under current law and after possible implementation of LD 420 are shown below.

Cash and mutual funds			$50,000
Roth IRA			100,000
Home and personal property			350,000
Family-run business			11,000,000
Total estate value			$11,500,000
Maine estate tax under LD 420			$960,000
Maine estate tax under current law			510,000
Tax increase under LD 420			$450,000

Under current law, Jane’s family members would generate almost enough money to cover her estate taxes by liquidating her cash, mutual funds, IRA, home, and personal property (everything but the family-owned business).  They presumably would look to the business to cover the $10,000 shortfall.  However, under LD 420, the estate would come up short by $460,000, indirectly leaving her sons to fund that amount potentially by diverting cash from the business, borrowing money, or from the sale of some of their mother’s shares to a third party.

Maine’s Committee on Taxation is holding a work session on Thursday, March 5, 2020, and those interested in weighing in on this proposed legislation can find contact information at the link below.

http://legislature.maine.gov/committee/#Committees/TAX

For more information, please contact your BNN tax advisor at 1.800.244.7444.