Inheritance taxes are not common, and Maryland is the only state within the United States that collects both an inheritance tax and an estate tax.
As we work hard to build financial security and to leave a legacy, we do not want our estates to be subject to heavy taxation. However, Maryland may assess an inheritance tax when certain individuals inherit money or property after a death. There are some misconceptions about the Maryland inheritance tax that can affect your planning, and it is important to dispel such myths, which include:
- The inheritance tax and estate tax are the same: This is not true. There is both an estate tax and an inheritance tax that may be charged in Maryland. The estate tax is paid based on the estate’s value, while the inheritance tax is based on the relationship of the beneficiary or heir.
- You can avoid inheritance and estate taxes if assets transfer outside of probate: This is not necessarily the case. While some estate planning tools may reduce or avoid estate taxes, it is not true that all non-probate assets do not count as part of the estate. For example, if assets are put into a Living Trust, they will transfer outside the probate process through the trust administration process, but still count for gross estate purposes.
- Inheritance tax has to be paid by everyone: The truth is that only certain people who inherit property are going to be required to pay Maryland’s inheritance tax. Beneficiaries including spouses, children, grandparents, parents, and siblings, are exempt from inheritance taxes. Common non-exempt beneficiaries may include nieces, nephews, cousins, and friends.
- All assets are taxed when inheritance tax has to be paid: Under statute, there are certain categories of assets that can be transferred to a new owner and will not be subject to inheritance tax.
These are only a few of the common misconceptions that exist about estate and inheritance tax laws in Maryland. Sinclair Prosser Gasior can help you understand from both planning and administration perspectives how to ensure that your loved ones can keep as much of your money as possible. Contact us today or attend an upcoming free webinar to learn more about your estate planning options.