“Understanding Maryland Estate and Inheritance Tax” by Attorney Alex Pagnotta (Audio)
Understanding Maryland estate and inheritance tax implications is crucial for residents that are planning their estate. Maryland has an estate tax separate from the federal estate tax. To calculate whether or not your estate will owe an estate tax in Maryland, you need to determine the fair market value of your assets and subtract the debt. If your net estate exceeds the exemption amount during the year of death, your estate will owe a Maryland estate tax. The exemption in 2024 is five million dollars ($5.0M).
Unlike the federal estate tax exemption, the Maryland exemption will not be adjusted for inflation in the future. Since 2019, Maryland law also provides for the “portability” of any unused Maryland exemption under certain circumstances. This means a surviving spouse may elect to use any portion of the deceased spouse’s unused Maryland estate tax exemption if certain conditions are met.
The maximum estate tax rate in Maryland is sixteen percent (16%). The estate tax return is due nine months after death, whether or not an extension to file is granted. Even if the estate is not required to file a federal estate tax return, you must complete a federal return and file it with the state return.
Maryland has an estate tax and an inheritance tax. An inheritance tax is based on the relationship that you have with the person to whom you are leaving money. There are many exemptions to the inheritance tax. For instance, the following individuals will not have to pay an inheritance tax for money they receive from a decedent in Maryland: children, stepchildren, grandchildren, parent or step-parent, sibling, or spouse. The law also exempts a spouse of a child or grandchild or other lineal descendent. So, who does have to pay inheritance tax? Nieces or nephews and non-family members are the individuals who pay the tax most often.
In Maryland, the inheritance tax is roughly ten percent (10%). The tax is collected by the Register of Wills in the county where the decedent lived or owned real property. The inheritance tax is assessed against assets that pass under the terms of a Will or Revocable Living Trust, by deed, by joint ownership, by payable on death designation, or through intestacy. It is important to meet with an estate planning attorney to discuss how the inheritance tax will be paid. The personal representative named in your Will must pay the inheritance tax before distributing the asset to the heirs, otherwise, each individual is responsible for paying his or her portion of the inheritance tax due. Even if an asset passes to a beneficiary outside the probate proceeding, the inheritance tax is still due and must be paid. When you establish your estate plan, the documents should stipulate whether your estate or the individual beneficiary is responsible for paying the inheritance tax.
A qualified estate planning attorney can meet with you to discuss whether your estate is subject to the state estate tax or the state inheritance tax and any planning opportunities that may be available. If you have any questions, we invite you to attend an upcoming estate planning seminar to learn more about protecting your legacy from costly taxes.
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