When planning for retirement or developing an estate plan, one of the most common questions people have is whether there is an inheritance tax in Delaware.
The answer is no. There is not an inheritance tax. However, there is an estate tax. But, the estate tax exemption is so high, only those with large estates will be subject to the tax.
What’s the difference between an inheritance tax and an estate tax? An inheritance tax is a tax owed by individuals who inherit an estate. An estate tax is a tax paid by the estate itself.
Delaware’s Estate Tax
Delaware’s estate tax laws mirror the federal estate tax laws. In 2016, only estates that exceed $5.45 million for individuals and $10.9 million for married couples will be subject to a federal estate tax – the same is true to individuals in Delaware.
How Are Estates Valued?
Your gross estate includes basically every asset you hold, including:
- Bank accounts*
- Stocks and bonds, including U.S. savings bonds*
- Retirement accounts
- Life insurance you took out on yourself
- The value of any business or business interest you own
- The value of any trusts in which you are a beneficiary
- The value of any real estate you own*
- Any money owed to you, such as personal loans you have made, and wages, bonuses or commissions you earned
- The value of any vehicles you own*
- The value of your personal effects, such as jewelry, art and collectibles
- The value of any taxable lifetime gifts you made that exceeded the annual gift tax exclusion
- Certain transfers made within three years of your death
*If an asset is held jointly with another person, it may transfer automatically to them upon your death, and thus not be included in your estate.
For most people, the value of these items – especially if they are married – will not exceed the estate tax exemption levels. And for those that do, there are planning tools to help strategically transfer assets out of their estates and avoid, or at least minimize, estate taxes.