On May 15, 2014, Governor O’Malley signed a bill that will raise the Maryland estate tax exemption. The General Assembly passed the legislation this session and there was much anticipation as to whether the governor would sign the bill.
Currently, the state estate exemption is One Million Dollars in Maryland. This means that if you pass away with less than One Million Dollars of assets, you will not incur any state estate tax upon your death. However, for estates valued in excess of One Million dollars, the value of the estate in excess of One Million Dollars is taxed at 16%.
The new law will gradually increase the state estate tax exemption over a five year period. While the exemption will remain at One Million Dollars for those dying in 2014, it will increase to 1.5 Million Dollars for those dying in 2015, Two Million Dollars for those dying in 2016, Three Million Dollars for those dying in 2017, and Four Million Dollars for those dying in 2018. In 2019, the Maryland estate tax exemption will be unified with the federal estate tax exemption, which is currently 5.34 Million Dollars and is indexed for inflation.
Although the legislation will have a positive impact for many Maryland residents who are concerned about taxes and protecting their estates, Maryland also has an inheritance tax that should be considered when the estate plan is established or reviewed.
The inheritance tax is imposed on the clear value of property that passes from a decedent to some beneficiaries, including nieces or nephews, friends, or non-relatives. The tax is levied on property that passes under a will, the intestate laws of succession, and property that passes under a trust, deed, joint ownership, or otherwise. The inheritance tax in Maryland is assessed at a flat rate of 10%. The tax is collected by the Register of Wills located in the county where the decedent either lived or owned property.
If you plan to leave a portion of your estate to a niece or nephew, a non-spouse significant other, or a friend, you should meet with an estate planning attorney to discuss who will pay the inheritance tax. When you establish or update your estate plan, the documents will stipulate whether your estate or the beneficiary will be responsible for paying the state’s inheritance tax.
Spouses, children and their spouses, grandchildren, siblings, and parents are all exempt from the state inheritance tax.
There may be techniques to avoid or minimize the state inheritance tax. For example, you can avoid the inheritance tax by making gifts during your lifetime. A person may gift up to the annual exclusion amount, currently $14,000 on or after January 1, 2013, without triggering a taxable gift. This applies regardless of the beneficiary’s relationship to the donor.
An estate planning attorney can meet with you to discuss whether your estate is taxable and planning opportunities that may exist to assist you in reducing potential tax liabilities.
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