Update on Maryland Estate Tax

Maryland Governor Martin O’Malley has signed into law H.B. 739 (the “New Law”), which contains revisions to the Maryland estate tax law. Specifically, the New Law gradually increases the Maryland estate tax exemption amount over the next five years until the Maryland estate tax exemption is equal to the Federal exemption. Additionally, beginning in 2019, portability will apply to the Maryland estate tax exemption, so that any Maryland estate tax exemption not used at the death of a spouse may be used at the surviving spouse’s death. By increasing the estate tax exemption amount and eventually allowing portability, the New Law increases the number of estates that will pass free of Maryland estate tax.

The Old Law
Before the New Law, the determination of Maryland estate tax payable for a decedent’s estate was calculated allowing the estate the benefit of a $1,000,000 exemption. Under the old law, a taxable estate that exceeded $1,000,000 would have owed Maryland estate tax. Portability did not apply to the Maryland estate tax exemption under the old law. Each spouse was limited to his or her own exemption amount upon his or her death, and if it was not used in the first spouse’s estate, it was lost.

Maryland Estate Tax under the New Law
Under the New Law, the determination of Maryland estate tax payable for a decedent’s estate will be calculated allowing the estate the benefit of an exemption of the “applicable exclusion amount” in effect at the time of the decedent’s death. The applicable exclusion amount is set to increase gradually over the next five years as follows:

Decedent dying on or after: Applicable exclusion amount:
January 1, 2014 and before January 1, 2015 $1,000,000
January 1, 2015 and before January 1, 2016 $1,500,000
January 1, 2016 and before January 1, 2017 $2,000,000
January 1, 2017 and before January 1, 2018 $3,000,000
January 1, 2018 and before January 1, 2019
$4,000,000

For the estate of a decedent who dies on or after January 1, 2019, the applicable exclusion amount will equal the federal applicable exclusion amount. The federal applicable exclusion amount is indexed for inflation, but is currently $5,340,000 plus the deceased spousal unused exclusion. The inflation-indexed applicable exclusion amount in 2019 is estimated to be $5,900,000 plus the deceased spousal unused exclusion.

Beginning in 2019, the Maryland estate tax exemption will be portable between spouses. If any Maryland estate tax exemption is unused at the death of the first spouse to die (as, for example, where the first spouse to die has insufficient assets to take full advantage of his or her exemption), then at the death of the surviving spouse, he or she may use the deceased spouse’s unused exemption. With portability, beginning in 2019 a married couple will have an estimated combined Maryland estate tax exemption of $11,800,000.

Topics:  Estate Planning, Estate Tax, State Taxes, Tax Reform

Published In: Tax Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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