At the time this is being posted, Maryland is among the group of 20 states (including DC) that imposes a tax on estates at the state level. This estate tax means Maryland estates have to pay a one-time tax in the year in which they are settled. For now, Maryland’s estate tax rate is a flat 16%. That rate is levied on the gross value of the estate, meaning the total value of all items, real estate, bank accounts, annuities, insurance policies, business, etc. in the name of the person who is deceased. Presently, Maryland’s estate tax exclusion, the amount that an estate can pass without owing any tax, is set at $1,000,000. That means that in 2014, an estate owes tax only on the amount greater than its first $1,000,000. For example, an estate valued at $1,5000,000 would owe an estate tax of 16% of $500,000, or $8,000, in the year 2014. It’s worth mentioning that the exclusion amount is scheduled to increase in the very near future.
Maryland’s exclusion is set to increase over the next 5 years as follows:
2014 – $1,000,000
2015 – $1,500,000
2016 – $2,000,000
2017 – $3,000,000
2018 – $4,000,000
2019 – to be equal to the federal estate tax exclusion and portable
What is the Maryland Inheritance Tax?
I addition to the Maryland estate tax, some estate plans can trigger a separate tax called the Maryland inheritance tax. The Maryland inheritance tax rate is 10%. It’s important to note that not every inheritance is taxed, however. The following transfers are excluded:
- gifts to a spouse, child, or other lineal descendant
- gifts to a spouse of a child or other lineal descendant
- gifts to a parent, grandparent, stepchild, stepparent, or sibling
Maryland Estate Tax and Will Drafting
The state-level estate taxes described above bring unique estate planning challenges to Maryland lawyers. At the present time, drafting a will for any estate that may approach a value of $1,000,000 requires caution. The practitioner has to consider that some estate plans will incur taxes that other plans will not. For this reason, Maryland estate planning often involves using trusts and other strategies aimed at avoiding the overloading of a surviving spouse with gifts that will leave him or her with an estate greater than the estate tax exclusion. Any time that your estate approaches $1,000,000 or more, you should ask your lawyer about potential tax consequences.
Matthew Baum is a Maryland attorney with offices in Baltimore, Catonsville, and Columbia. He can be reached at (410) 929-3435.