Overview of Delaware Estate Tax Laws in 2014

If you live in Delaware, then you live in one of a handful of jurisdictions that still collect a local death tax. The estates of Delaware residents, as well as the estates of nonresidents who own real estate and/or tangible personal property located in Delaware, are subject to a local death tax under the following guidelines.

NOTE: State and local laws change frequently, and the following information may not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.

When Is an Estate Subject to the Delaware Estate Tax in 2014?

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The Delaware estate tax exemption follows the federal estate tax exemption, which began being indexed for inflation in 2011.  Therefore, for Delaware residents and nonresidents alike, an estate may be subject to the Delaware estate tax if the estate is required to file a federal estate tax return (IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return).

For the 2014 tax year, this means that for residents of Delaware, an estate may be subject to the Delaware estate tax if the total gross estate exceeds $5,340,000.

For the 2014 tax year, this means that for nonresidents of Delaware, an estate may be subject to the Delaware estate tax if it includes real estate and/or tangible personal property having a situs within the Delaware and the gross estate exceeds $5,340,000.

What Delaware Estate Tax Forms Must Be Filed?

The estates of residents of Delaware must file Form 900-R, Estate Tax Return for Resident Decedents.

The estates of nonresidents of Delaware must file Form 900-NR, Estate Return for Non-Resident Decedents.

Are Transfers to a Surviving Spouse Taxable?

Outright transfers to a surviving spouse are not taxable.

For married couples who have used AB Trust planning to reduce their federal estate tax bill, a Delaware estate tax will not be due on the B Trust after the first spouse's death since the Delaware estate tax exemption equals the federal estate tax exemption.

Note that in states where the state estate tax exemption is less than the federal estate tax exemption, there will be a state estate tax due on the B Trust due to the gap between the state estate exemption and the federal exemption.  Nonetheless, a handful of states allow a married decedent's estate to make an election to treat a trust of which the surviving spouse is the sole beneficiary as "qualified terminable interest property" ("QTIP" for short) for purposes of calculating the state estate tax.  Thus, married residents of certain states may incorporate ABC Trust planning into their estate plan.

When Are the Delaware Estate Tax Return and Tax Payment Due?

The Delaware estate tax return must be filed, and any estate tax due must be paid, within 9 months after the decedent's date of death.

The Division of Revenue may, upon written request, extend the time for filing the return and may extend the time for payment of the tax for a reasonable period from the due date.  If the time for filing the federal estate tax return is extended due to an extension request on IRS Form 4768, Application for Extension of Time to File Estate Tax Return, then the time for filing the Delaware estate tax return will be extended automatically for the same period, provided that an executed copy of the federal extension grant is furnished to the Division of Revenue before or with the filing of the Delaware return.

An extension request will not extend the time to pay the Delaware estate tax, and interest will accrue during the extension period.  The interest rate is 1/2% per month (or fraction thereof) for delinquent taxes, assessed from the due date to date of payment. An additional penalty of 5% per month, to a maximum of 50% of the amount of tax due, is also applicable.

Where Are the Delaware Estate Tax Return Filed and Tax Payment Made?

Mail returns and payments to:

Delaware Division of Revenue
P.O. Box 2044
Wilmington, DE  19899-2044

Checks should be made payable to the "Delaware Division of Revenue."

How Is the Delaware Estate Tax Calculated?

The Delaware estate tax rate is a progressive tax that maxes out at 16% for estates valued at $10,040,000 or more.

Where Can I Find Additional Information About Delaware Estate Taxes?

For more information about Delaware estate taxes, refer to the Delaware Department of Finance website.

Does Delaware Collect an Inheritance Tax?

Does Delaware currently collect a local inheritance tax, which is a tax assessed against the share received by each individual beneficiary of an estate as opposed to an estate tax, which is assessed against the entire estate? The answer to this question is No; the Delaware inheritance tax was repealed effective for deaths occurring on or after January 1, 1999.