Maryland’s New Estate Tax Law Goes Into Effect

The state’s newly enacted changes to Maryland’s estate tax laws will gradually bring Maryland in line with federal estate tax levels. ?The change could affect the plans of those trying to ensure that one of the legacies they leave is a low estate tax bill.

For many years, Maryland has exempted the first $1,000,000 of an estate from taxation. ?By contrast, the federal estate tax exemption is $5,000,000, rising slightly each year because it is indexed to inflation. ?The death taxes of many states parallel this federal exemption, and a majority of states do not have estate taxes at all. ?Four states have eliminated their estate taxes since 2010.

The law passed by the Maryland state legislature doesn’t go that far, but it does phase in a higher exemption. ?On January 1, 2015, the exemption will be $1.5 million. ?It rises by $1 million each year afterwards, with a final adjustment in 2019. ?It then stays linked to the amount of the inflation-indexed Federal exemption.

These provisions do not affect Maryland’s separate “inheritance tax.” ?Even if an estate is exempt from estate tax, the inheritance tax may apply, with different consequences for different beneficiaries. ?Close relatives, such as a spouse, child or sibling might not have to pay inheritance tax, but others, such as a niece, nephew or friend, might. Maryland is one of only two states that have both an inheritance and an estate tax.

Over time, the new law should lower estate taxes for many, but minimizing the value of an estate subject to taxation remains an important goal. ?Techniques to consider include setting up a bypass trust to defer taxes; changing legal domicile to a state with no estate tax at all; and granting gifts during one’s life. ?A knowledgeable estate tax professional can suggest other strategies.

The estates, trusts, and probate attorneys at Longman & Van Grack have years of experience working with countless types of planning documents. ?We understand that every individual is different, and each needs his or her future planned in a unique way. ?If you have an estate, trust, or tax planning question or want to know how this new law could affect you, call (301) 291-5027?? to schedule a consultation.