There is no estate tax in Delaware at the state level. The federal government does levy a tax on estates that reach a certain threshold, though, so residents of The First State may have to pay that. Delaware residents can use this guide to learn what they need to know about the estate tax if they are starting to think about estate planning. Estate planning is complicated, so you may want to get some help. A financial advisor will take you through everything you need to know about estate planning, and SmartAsset can help you find a financial advisor with our free financial advisor matching service.
Delaware Estate Tax
As of Jan. 1, 2018, Delaware is one of 38 states that does not levy its own estate tax.
What Is the Estate Tax?
The estate tax, which you may see referred to as the “death tax,” is levied on the estate of someone who recently died. It applies to the estate of the deceased before it is passed on to designated heirs. The estate tax only applies to estates that are worth a certain amount.
The inheritance tax is different from the estate tax. Inheritance tax applies to money or assets after they’ve already gone to the deceased’s heirs. Beneficiaries are responsible for paying inheritance tax, whereas estate tax is taken out of the deceased’s estate.
Delaware Inheritance and Gift Tax
Delaware does not have an inheritance tax. However, be aware that the inheritance laws of other states may apply to you if you inherit property or assets from someone living in a state that has an inheritance tax. In Kentucky, for instance, all in-state property is subject to an inheritance tax, even if the beneficiary lives in a different state. Check the local laws to see if you’ll owe tax when you receive an inheritance from someone who lives out-of-state.
Delaware does not levy a gift tax either. The federal gift tax exemption is $15,000 per year for each person to whom you give gifts. If you give one person more than $15,000 in a year, you must declare that gift to the IRS. It counts against your lifetime gift tax exemption of $11.18 million and lowers your federal estate tax exemption.
Federal Estate Tax
You won’t have to pay a state estate tax in Delaware. The federal estate tax may still apply, though. The exemption for the federal estate tax is $11.18 million. This figure recently increased with the signing of the 2017 tax bill. For married couples, the exemption is portable, meaning that with the right legal maneuvers, a couple can protect up to $22.36 million when the second spouse dies.
If you have an estate worth more than $11.18 million, you’ll pay the federal estate tax. It’s a progressive tax rate that tops out at 40%.
Here is an example: Let’s say you have an estate worth $11.80 million and no spouse. If you subtract the $11.18 million exemption, you have a taxable estate of $620,000. Consulting the below chart, you fall into the third-highest bracket and owe a base rate of $155,800 on the first $500,000. You’ll owe a marginal rate of 37% on the remaining $120,000, which equals $44,400. Add that to the base rate, and you have a total estate tax burden of $200,200.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the federal exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Delaware Tax Picture
Generally, Delaware is a tax-friendly state for retirees. Social Security income is not taxed. Withdrawals from 401(k) plans or other retirement accounts are partially taxed, as is income from private and public pension plans. For taxpayers under 60, there is a $2,000 deduction per person for retirement income. At 60, the deduction increases to $12,500. For all other income, there is a progressive income tax that tops out at 6.60%.
Delaware has a very low property tax rate. The average effective rate is just 0.55%. While home values are still 8% higher than the national average, they are lower in Delaware than in many surrounding states. The state also offers seniors a school property tax credit. If you are over 65 and own a home as your primary residence in the state, you get a credit equal to 50% of your school property taxes. This credit runs up to $400.
Notably, Delaware has no sales tax.
Estate Planning Tips
- Estate planning is not easy, and it can get confusing if you don’t have much experience with financial matters. Luckily, there are people who can make it easier. SmartAsset can help you find a financial advisor with our free financial advisor matching service. You answer a few questions and we match you with up to three advisors in your area. We fully vet all our advisors, and they are free of disclosures. You then talk to each match and see if any of them fit what you’re looking for.
- You may be wondering if you even need estate planning, especially if you’re on the younger side. Estate planning isn’t just for the wealthy or the elderly, though. If you have any assets you want to pass on to your family in an orderly fashion when you’re gone — whenever that may be — it makes sense to think about estate planning now.
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