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    Three Taxes at Death

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    There are three taxes your family may have to face in the State of Maryland.  There is a federal estate tax, a Maryland estate tax, and a state inheritance tax.  Maryland does have a state inheritance tax, but it does not apply to everyone.  It does not apply if you leave your assets to your spouse, your children, your grand-children, parents or grandparents, or your brothers or sisters.  Anyone else, nieces, nephews, cousins, friends, or domestic partners, the State of Maryland does tax with an inheritance tax of 10%.  And that is 10% on the first dollar.  So, if you leave a niece $60,000, she will have to pay $6,000 in inheritance tax.

    Then, we have the federal estate tax and the Maryland estate tax.  The way they work is you add up all of your assets: your real estate (fair market value), your retirement accounts (IRAs, 401Ks, TSPs), your savings accounts, your stock, the death value of your life insurance and you come up with your gross estate.  Then, you subtract the debt: your mortgages, credit card bills, loans, and your come up with your net estate.  Right now, if your net estate is less than one million dollars, there is no tax.  Assets over one million dollars are taxed by the State of Maryland at approximately 16%.  The State of Maryland used to follow the federal exclusion.  Because the federal government has increased their exclusion, the State of Maryland capped their tax on assets over one million dollars ($1,000,000).

    Finally we have the federal exclusion and right now it is at five million dollars ($5,000,000).  So anything under $5 million will not be taxed by the federal government, but anything over that amount will be taxed at 35%.  The federal exclusion of $5 million ends December 31, 2012 and reverts back to an exclusion of $1 million with a 55% rate as of January 1, 2013 unless Congress changes the law in the meantime.

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