For deaths in 2014, estates with a total value of more than $5.34 million may be subject to the Delaware estate tax. (The exempt amount for 2013 was $5.25 million; the state exemption amount changes with the federal estate tax exemption amount.)
Your estate could owe Delaware estate tax even if you’re not a state resident. If you own valuable real estate in Delaware or have other tangible assets there, your estate will have to file a return.
Note: Under a "sunset" provision in prior law, the Delaware estate tax was to have ended on July 1, 2013. In March of 2013, the state legislature passed legislation repealing the sunset provision.
Will Your Estate Have to File a Delaware Return?
Under current law, if you leave a gross estate worth more than $5.34 million, your executor will have to file a Delaware estate tax return. The gross estate includes just about everything you own at death. It doesn’t matter, for tax purposes, whether or not an asset goes through probate.
Your gross estate includes:
- Real estate
- Bank accounts, certificates of deposit, and investment accounts
- Stocks and bonds
- Vehicles and other personal property
- Proceeds of life insurance policies on your life, unless you didn’t own the policy
- Retirement account funds
- Business interests (sole proprietorship, limited liability company, or small corporation)
- The value of a life insurance policy on your life, unless you have transferred its ownership to someone else
For assets that you own jointly with someone else, only your interest is included. For example, if you and your spouse own a house together, half of its value would be included in your estate.
Will Your Estate Owe Tax?
Not all estates that must file a tax return end up owing Delaware estate tax. That’s because a number of deductions, subtracted from the gross estate, can reduce the size of your taxable estate. And if the value of the taxable estate is less than $5.34 million, no estate tax will be due.
The most common and important deduction comes from the fact that all property left to a surviving spouse is exempt from state estate tax. So if you leave everything to your spouse, no estate tax (state or federal) will be due. The value of certain farmland can also be deducted.
Preparing and Filing an Estate Tax Return
If a Delaware estate tax return is necessary, it’s the job of your executor to file it and to pay (from estate assets) any tax due. The deadline is nine months after the date of death, unless the state grants an extension.
Delaware estate tax return forms and instructions can be downloaded from the state’s Division of Revenue website. But your executor will need to hire expert help, probably from an experienced estate administration lawyer, to prepare the return. The expert’s fee can be paid from the estate's assets.