Delaware has positioned itself as a tax-friendly state with no inheritance, estate, or gift tax. Ranking as the sixth state with the lowest property tax in the U.S., it is undoubtedly attractive to residents. In this blog post, we aim to provide a simplified guide on Delaware inheritance laws, covering intestate succession, probate, and validity of a will. Should you need professional assistance in estate planning or inheritance investment, feel free to utilize SmartAsset’s advisor matching tool to find a competent financial advisor near you.
No Inheritance Tax or Estate Tax in Delaware
Delaware is among the 33 states without inheritance or estate taxes. If you’ve inherited an estate before January 1, 2018, you might still need to pay Delaware estate taxes due to its repeal on that date. It’s important to distinguish between estate taxes and inheritance taxes – the former deducted from the deceased’s estate posthumously, while the latter applies to the heirs upon receiving their inheritance.
Adding to its tax-friendliness, Delaware has no gift tax. But, don’t forget about the federal gift tax, which applies when an individual receives a gift exceeding $16,000 in 2022 or $17,000 in 2023.
Additional Tax Filings
Estate taxes on inheritances before 2018: If you’ve inherited an estate or part of it before 2018, you might owe estate taxes. Estates valued at $5.49 million or more might attract Delaware estate tax.
Inheritance tax from another state: Inheriting an estate from a state imposing inheritance or estate taxes implies that you’ll have to pay those taxes, irrespective of Delaware’s lack of them.
Federal estate tax: Applicable if the inherited estate surpasses $12.06 million (individuals) or $24.12 million (married couples) in 2022, increasing to $12.92 million and $25.84 million respectively in 2023.
To file estate-based returns, you’ll need an Employer Identification Number (EIN) from the IRS.
Testamentary and Intestate Succession in Delaware
A valid will empowers you to control the distribution of your estate among your heirs. If you pass away without a valid will (dying intestate), your state’s inheritance laws will dictate asset distribution, potentially leading to probate.
In Delaware, you must be at least 18 years old, mentally competent, and your will must be signed by you and two witnesses. It should be in written format and name a beneficiary. However, not all properties, like those jointly owned with survivorship rights, are subject to the will; they transfer to the surviving owner.
Probate can be avoided for estates under $30,000 in Delaware, which helps your heirs bypass the time-consuming probate process. However, Delaware’s probate process can be more involved due to the non-adherence to the Uniform Probate Code and specific forms and deadlines.
Intestate Succession and Spouses, Children, Unmarried Individuals
Without a valid will in Delaware, your estate will be distributed per the state’s intestate succession laws. This often leads to probate and the assets generally go to your closest living relatives. Certain assets like those in a living trust, retirement accounts, life insurance policies, and jointly owned property do not pass through probate.
The portion of the estate your spouse is entitled to under Delaware’s intestate inheritance laws depends on whether you have surviving children, parents, or other descendants. Children, to be legally recognized, should be legally adopted, born within marriage, or those born outside of marriage if a marriage later occurred or paternity was established.
Unmarried individuals dying intestate in Delaware will have their estate distributed to surviving children in equal shares. If no children, then parents inherit. If no children or living parents, then siblings in equal shares, and so forth to the next of kin. If no surviving relatives, the estate escheats, i.e., reverts to the state.
Non-Probate Delaware Inheritances and Other Features of Delaware Inheritance Law
Assets like those in living trusts, life insurance proceeds, retirement accounts, jointly owned property, payable-on-death bank accounts, and transfer-upon-death securities do not fall under Delaware’s intestate succession laws. The potential heir must outlive the decedent by 120 hours to be eligible for inheritance. Half relatives are treated the same as whole relatives, and an heir’s immigration status does not affect their eligibility to inherit part of your estate.
Estate management and handling inheritance can be complex. That’s why people often seek professional help. SmartAsset’s financial advisor matching tool can connect you with up to three nearby financial advisors equipped to handle your estate and inheritance planning needs. So, if you’re ready to work with a financial advisor, get started today.