CHAPTER 164

FORMERLY

SENATE BILL NO. 270

AS AMENDED BY SENATE AMENDMENTS NO, 1 AND 2

AN ACT AMENDING CHAPTERS 13 AND 15, TITLE 30 OF THE DELAWARE CODE RELATING TO INHERITANCE AND ESTATE TAXES.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Chapter 13, Title 30 of the Delaware Code by striking Sections 1301, 1304, 1305, 1306, 1310, 1314, 1322, 1323, 1341 and 1342 in their entirety and substituting in lieu thereof new Sections 1301, 1304, 1305, 1306, 1310, 1314, 1322, 1323, 1341 and 1342 to read as follows:

"§1301. Definitions.

(a) 'Executor' means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified and acting in the State, then any person in actual or constructive possession of any property of the decedent.

(b) 'Gross estate' of a decedent means the fair market value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, to the extent so provided in this chapter.

(c) 'Beneficiary' means any heir, legatee, devisee, grantee or other person who receives or is entitled to property which is included in the gross estate of the decedent under this chapter.

(d) 'Personal property' means all kinds of personal property whether tangible or intangible, except tangible personal property having a situs without this State, unless otherwise specified.

(c) 'Real property' means real property situated within this State, but not real property situated without this State unless otherwise specified.

(1) 'Stepchild' means a child of a spouse of the decedent to whom the decedent stood M the mutually acknowledged relation of a parent for not less than 10 years before death, if the relationship began at or before such person's 15th birthday and was continuous for ten years thereafter.

§1304. Powers of apitment and certain income interests.

(a) The value of the gross estate shall include the value of property with respect to which the decedent exercised or released, effective upon his death, a general power of appointment, or with respect to which the decedent at any time exercised or released a general power of appointment, either in whole or in part and Irrespective of the means by which such exercise or release was accomplished, if such property would have been included in the gross estate had it been owned by the decedent. The value of the gross estate shall also include the value of property with respect to which the decedent possessed a general power of appointment created after July 31, 1985 conferred upon the decedent by the decedent's spouse.

(b) The value of the gross estate shall include the value of property with respect to which the decedent exercised a general power of appointment within 6 months of his death,if the property affected by such exercise would have been subject to §1306 of this title had such property been owned by the decedent at the time of such exercise and had been transferred by him at that time

(c) The value of the gross estate shall include the value of property with respect to which the decedent at any time exercised a general power of appointment, if the property affected by such exercise would have been subject to §1307 of this title had such property been owned by the decedent at the time of his death or if possession or enjoyment of the property can, through ownership of such interest, be obtained by anyone only by surviving the decedent.

(d) The value of the gross estate shall include the value of any property to which this subsection applies in which the decedent had a qualifying income interest for life. This subsection applies to any property if: (1) a deduction was allowed with respect to the transfer of such property to the decedent under 26 U.S.C. Section 2523(1) of the Federal Internal Revenue Code, as presently enacted or hereafter amended, or any successor to such section relating to similar subject matter; or (2) a deduction was allowed for such property as Delaware qualified terminable Interest property under section 1323(b) of this chapter. This subsection does not apply to property described in the preceding sentence if 26 U.S.C. Section 2519 of the Federal Internal Revenue Code applied with respect to a disposition by the decedent of part or all of such property. For purposes of this chapter, property Includable in the gross estate of the decedent under this subsection shall be treated as property passing from the decedent. This subsection shall not apply to any qualifying Income Interest created by testamentary disposition of decedents dying prior to the effective date of this subsection or to any qualifying income interest in property transferred into an irrevocable inter vivos trust prior to August 1, 1985.

(e) A disclaimer or renunciation,or lapse of a general power of appointment, shall not be deemed to be an exercise or release of such power.

(1) For purposes of this chapter, the term 'general power of appointment' means a power which is exercisable in favor of the decedent, his estate, his creditors or the creditors of his estate; except that a power of appointment which is exercisable by the decedent only In conjunction with another person who is either the creator of the power or who has a substantial interest in the property, subject to the power, which is adverse to exercise of the power in favor of the decedent, shall not be deemed a general power of appointment.

(g) The value of property with respect to which the decedent possessed a power of appointment other than a general power of appointment as herein defined and the value of property with respect to which decedent possessed but did not exercise or release a general power of appointment shall not be included in the value of the gross estate of the decedent.

§1305. Jointly owned property.

The gross estate shall include the value of all property to the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety, or deposited with any banking institution or depository in the joint names of the decedent and any other person and payable to either or the survivor, except such part thereof as may be proved to have originally belonged to such other person or never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration In money or money's worth; provided, nevertheless, in the case of any interest in property held by the decedent and the decedent's spouse as either tenants by the entirety, or joint tenants with right of survivorship one half of the value of such interest shall be Included in the gross estate, but only if the decedent and the spouse of the decedent are the only joint owners of such interest.

§1306. Transfers in contemplation of death.

(a) General rule. The value of the gross estate shall include the value of all taxable gifts, as defined in §1401, made by the decedent in contemplation of death.

(b) Application of general rule. If the decedent made a taxable gift, as defined in §1401, within a period of 6 months ending with the date of his death, such taxable gift shall, unless shown to the contrary, be deemed to have been in contemplation of death within the meaning of this Chapter; but no such taxable gift made by the decedent more than 6 months ending with the date of his death, shall be treated as having been made in contemplation of death.

§1310. proceeds of life Insurance.

(a) The gross estate shall include the value of the decedent's interest in life Insurance policies insuring the life of anyone other than the decedent.

(b) Notwithstanding the provisions of section 1309 or of any provision of law, the proceeds of policies of life insurance Insuring the life of the decedent shall be exempt from and not subject to the tax Imposed by this chapter. Refunds of unearned premiums for the current policy period and post mortem dividends shall be considered proceeds of life insurance for purposes of this subsection.

1314. Valuation of farm and small business real property.

(a) In General. If the decedent was, at the time of his death, a resident of the State and the person filing the return of tax imposed by this chapter elects the application of this section, the value of qualified real property shall be Its value under 26 U.S.0 . Section 2032A of the Federal internal Revenue Code, or such similar subsequent tax legislation, hereafter referred to as "I.R.C. §2032A," whether or not a federal estate tax return Is required to be filed on behalf of such decedent. The aggregate decrease In the value of qualified real property which results from the application of this section with respect to the gross estate of any decedent shall not exceed ;500,000.

(b) Election. The election under this section shall be made not later than the time
prescribed by §§1342 and 1343 of this title for filing the return of the tax imposed by this chapter. The election shall be made on the return of tax required by this chapter, and shall be made in the manner provided in I.R.C. §2032A.

(c) Special Rules. For purposes of this section:

(1) 'Qualified real property' means real property located in the State and meeting the requirements of L R.C. §2032A.

(2) AU references to 'estate tax' in I.R.C. §2032A shall be deemed to be 'inheritance tax' for purposes of this section, and all references to the tax imposed by section 2001 in I.R.C. §2032A shall be deemed to be the tax imposed by section 1322 of this title.

(3) Despite the provisions of §2032A, there is no provision under this section for the qualified heir to furnish bond in lieu of personal liability.

(d) Disposition and Recapture. If there is a disposition of the qualified real property or if the qualified heir ceases to use the qualified real property for the qualified use as provided in I.R.C. 12032A, or if there is an Involuntary conversion resulting in additional tax liability under I.R.C. §2032A. there will be additional inheritance tax imposed as provided in I.R.C. §2032A as modified by 11314(c)(2).

(e) Limitations on Assessment. the statutory period for assessment of additional tax shall not expire before the expiration of 3 years from the date the Secretary of Finance is notified of the event giving rise to the liability for additional tax.

§1322. Tax imposed.

A tax computed at the following rates is hereby imposed on the transfer to each beneficiary of his net taxable share of the gross estate as determined in accordance with §1321 of this title:

(1) Class A. Where the property or any interest or estate therein passes to or for the use of the husband or wife of the decedent, the tax on such property, Interest or estate shall be at the following rates:

(a) On that part of its value exceeding $70,000 and not exceeding $100,000, 2 percent;

(b) On that part of its value exceeding $100,000 and not exceeding $200,000, 3 percent; and

(c) On that part of its value exceeding $200,000, 4 percent.

(2) Class B. Where the property or any interest or estate therein.passes to or for the use of a parent, grandparent, child by birth, wife or widow of a son or the husband or widower of a daughter, a child by legal adoption or the lineal descendant of the decedent, a stepchild of the decedent, the tax on such property, interest or estate shall be at the following rates:

(a) On that part of its value exceeding $10,000 and not exceeding $25,000, 1 percent;

(b) On that part of its value exceeding $25,000 and not exceeding $50,000, 2 percent;

(c) On that part of its value exceeding $50,000 and not exceeding $75,000, 3 percent;

(d) On that part of its value exceeding $75,000 and not exceeding $100,000, 4 percent;

(e) On that part of Its value exceeding $100,000 and not exceeding $200,000, 5 percent;

(f) On that part of its value exceeding $200,000, 6 percent.

(3) Class C. Where the property or any interest or estate therein passes to or for the use of any person not described in Class B whose relationship to the decedent is within five degrees of consanguinity, whether by the whole or half blood, and whether a blood relative of the decedent or a relative by virtue of legal adoption, the tax shall be at the following rates:

(a) On that part of its value exceeding $3,000 and not exceeding $25,000, 5 percent;

(b) On that part of its value exceeding $25.000 and not exceeding $50,000, 6 percent;

(c) On that part of its value exceeding $50,000 and not exceeding $100,000, 7 percent;

(d) On that part of its value exceeding $100,000 and not exceeding $150,000, 8 percent:

(e) On that part of its value exceeding $150,000 and not exceeding $200,000, 9 percent;

(f) On that part of its value exceeding $200,000, 10 percent.

(4) Class D. Where the property or any interest or estate therein passes to or for the use of any person, not described in Class A, Class B or Class C of this section, the tax shall be at the following rates:

(a) On that part of its value exceeding $1,000 but not exceeding $25,000, 10 percent;

(b) On that part of its value exceeding $25,000 but not exceeding $50,000, 12 percent;

(c) On that part of its value exceeding $50,000 but not exceeding $100,000, 14 percent;

(d) On that part of its value exceeding $100,000, 16 percent.

§1323. Deductions allowable in determining value of each beneficiary's taxable share of the gross estate.

(a) In determining the value of each beneficiary's net taxable share of the gross estate, the deductions allowable from the value of property included in the gross estate to which the beneficiary is entitled, shall be:

(I) Funeral expenses;

(2) Administration expenses;

(3) Claims against the estate;

(4) Unpaid mortgages on, or any Indebtedness In respect of, property included in the value of the gross estate, the amount of such mortgage or indebtedness to be limited to that proportion of such mortgage or indebtedness as the decedent's interest in such property included in the gross estate bears to the total value of such property.

(b) in determining the value of each beneficiary's net taxable share of the gross estate, there shall be allowed as a deduction from the value of property Included in the gross estate to which such beneficiary is entitled the value of all such property which qualifies for the federal estate tax marital deduction under 26 U.S.C. Section 2056 of the Federal Internal Revenue Code as presently enacted or hereafter amended, or any successor to such section relating to similar subject matter. For purposes of this section, property which could be qualified as qualified terminable interest property under 26 U.S.C. Section 2056(b)(7) of the Federal Internal Revenue Code shall be deemed to qualify for the deduction provided by this subsection, whether or not a federal estate tax return Is required to be filed on behalf of such decedent, only if an election is made to so qualify such property on a timely filed inheritance tax return. Such an election may be made with respect to the tax imposed by this chapter regardless of whether an election is made under 26 U.S.C. 12056(b)(7) of the Federal Internal Revenue Code. Property which is deducted from the gross estate by reason of the election provided in this subsection shall be known as Delaware qualified terminable interest property.

(c) Where any property, real, personal or mixed, which can be Identified as having been received by the decedent, or to which he Is entitled, as beneficiary of the estate of any person who died within 2 years prior to the death of the decedent, or which can be identified as having been acquired by the decedent in exchange for property so received, if an Inheritance tax under this chapter was collected from such estate, and if such property included in decedent's gross estate, a deduction of an amount equal to the value of such property at the time of the prior decedent's death shall be allowed.

(d) In determining the value of each beneficiary's net taxable share of the gross estate, no deduction shall be allowed by reason or on account of the payment, or liability for payment, of any Delaware Inheritance tax, or of any Delaware estate tax, or of any estate, Inheritance, legacy or succession tax of the United States or of any state or jurisdiction outside of this State.

1341. Inheritance tax returns.

(a) Resident returns. The executor of every resident decedent of this State shall makc a return with respect to the inheritance tax imposed by subchapter II of this chapter according to the forms and regulations prescribed by the Secretary of Finance or his delegate if any one of the following conditions applies:

(1) The value of the gross estate at the death of the decedent exceeds $70,000;

(2) The value of the gross estate at the death of the decedent exceeds $10,000 and I or more of the beneficiaries are persons described in Class B of 51322 of this title;

(3) The value of the gross estate at the date of death of the decedent exceeds $3,000 and I or more of the beneficiaries are persons described In Class C of §1322 of this title;

(4) The value of the gross estate at the death of the decedent exceeds $1,000 and I or more of the beneficiaries arc persons described in Class D of §1322 of this title;

(5) In all other cases where the decedent owned an inheritable or joint title to real property.

(b) Nonresident returns. The executor of every nonresident decedent of this State who. at the time of his death. owned any tangible personal property. real property or any Interest therein, which is made subject to this chapter by §1303 of this title, shall make a return with respect to the inheritance tax imposed by subchapter Il of this chapter according to the forms and regulations prescribed by the Secretary of Finance or his delegate.

§1342. Filing returns and payments - time and_Nace.

(a) Returns made under this chapter shall be filed within 9 months of the date of the decedent's death; provided. nevertheless. that in any case where an

estate shall, before the expiration of nine months from the date of the decedent's death. become involved in litigation before any Court the determination of which may affect the computation of Delaware Inheritance Tax, the due date of the return shall be thirty days after the conclusion of the litigation.

(b) Any executor required to make and file a return under this chapter shall, without assessment, notice or demand, pay the tax due to the Department of Finance on or before the date fixed for filing such return. determined without regard to any extension of time for filing the return.

(c) The Secretary of Finance shall prescribe the place of filing any returns required under this chapter and for the payment of any tax due under this chapter."

Section 2. Amend Sections 1502 and 1509, Chapter 15, Title 30 by striking said sections in their entirety and substituting in lieu thereof new Sections 1502 and 1509 to read as follows:

§1502. Computation of Tax.

The Delaware estate tax shall be computed as follows: The aggregate amount of the taxes due to the State, under the provisions of chapter 13 of this title, in respect to any property, estate or interest therein belonging to the decedent at the time of his death shall first be ascertained. To such amount there shall be added the aggregate amount of all estate, inheritance, legacy and succession taxes actually paid to any other state or territory of the United States or to the District of Columbia In respect to any property owned by such decedent or subject to such taxes as a part of or in connection with his estate. The sum resulting from such addition shall then be deducted from an amount equal to the amount of the maximum credit allowable to the estate of the decedent by the federal estate tax law (26 U.S.C. §2001) or laws for estate, inheritance, legacy or succession taxes paid to any state or territory or to the District of Columbia. The remainder shall constitute and be the Delaware estate tax upon the estate of the decedent. In case of any estate where the amount to be deducted is equal to or greater than the amount of the maximum credit allowable by the federal estate tax law (26 U.S.C. §2001), then the estate shall be exempt from the Delaware estate tax prescribed by this section.

§1509. Refund of taxes erroneously paid.

When any amount has been erroneously paid as Delaware tax or interest on such tax, the Secretary of Finance. on satisfactory proof of such erroneous payment and upon the recommendation of the Department of Finance. may refund and pay to the executor. administrator, trustee or person who has paid any such tax or interest in error the amount of such tax or interest so paid. All applications for the repayment of such tax shall be made within 3 years from the date of payment. In case of the pendency. at the time of payment or at any time during the 3 year period, of litigation with respect to the liability for the federal estate tax or for the Delaware estate tax of the estate on behalf of which such payment for the Delaware estate tax has been made. application for the repayment of such amount erroneously paid as the Delaware estate tax or interest may be made at any time within 6 months after the final determination of such litigation. Interest on such refunds shall be allowed at the rate of 1% per month or fraction thereof from the date the application was received by the Department of Finance, except that no interest shall be allowed if refund is made within 45 days after the date the application Is received by the Department of Finance "

Section 3 Amend §1309(c), Chapter 13, Title 30 of the Delaware Code by striking said §1309(c) In its entirety and inserting in lieu thereof a new subsection (c) to read as follows:

"(c) Exemption of annuities under certain trusts and plans.

Notwithstanding the provisions of this section or of any provisions of law, there shall not be deemed to be a transfer from any decedent the value of an annuity or other payment received by an beneficiary under any arrangement referred to in 26 U.S.C. Section 2039(c) or (e) of the Federal Internal Revenue Code as presently enacted or hereafter amended, or any successor to such section relating to similar subject matter."

Section 4. This Act shall become effective with respect to decedents dying on or after July 1, 1985.

Approved July 12, 1985.