Maryland has its own estate tax separate from the federal estate tax. On May 15, 2014, Maryland Governor Martin O’Malley signed House Bill 739, Maryland Estate Tax – Unified Credit – into law. With this law, the Maryland estate tax exemption will gradually increase on an annual basis until it matches the federal estate tax exemption in 2019.
To calculate whether or not your estate will owe a Maryland estate tax, you need to determine the fair market value of your assets, subtract the debt, and then if your net estate exceeds the exemption amount during the year of death, your estate will owe a Maryland estate tax. The exemptions are as follows: in 2015 – One Million Five Hundred Thousand ($1.5M), in 2016 – Two Million ($2.0M), in 2017 – Three Million ($3.0M), in 2018 – Four Million ($4.0M), and in 2019 – Maryland’s estate tax will be the same as the federal exemption amount. In 2019, the federal exemption is expected to be approximately Five Million Nine Hundred Thousand dollars ($5.9M).
The top rate for the Maryland estate tax is Sixteen percent (16%). The Maryland 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. Preparing an estate tax return is a job for an expert, and your executor will need to hire an estate planning attorney. The fee, which can be paid from estate assets, will be several thousand dollars.
Maryland is one of two states which collects both a state estate tax and a state inheritance tax. The new law did not make any changes to the inheritance tax. An inheritance tax is based on the relationship that you have with the person 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 including stepchildren, grandchildren, parent or step parent, brother or sister, and a spouse. The law also exempts a spouse of a child or grandchild or other lineal descendent. So who does have to pay a tax? Nieces and nephews and non- family members are the individuals that pay the tax most frequently.
The Maryland inheritance tax is Ten percent (10%). The tax is collected by the Register of Wills located in the county where the decedent either 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 Maryland 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 of 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 Maryland 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 to you.
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