What Should I Know About Maryland Estate and Gift Taxes in 2014?

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On May 15, 2014, Governor O’Malley signed the Maryland legislature’s measure to ease the burden of the Maryland estate tax.

Since 2004, the State of Maryland has had a separate estate tax with an exemption level of $1 million per person, in contrast to the federal estate tax exemption which currently exceeds $5 million and is indexed for inflation. This disparity has significant estate planning consequences for many individuals and business owners. An individual who can pass in excess of $5 million of assets to his or her heirs free of federal estate tax still faces Maryland estate tax at a maximum rate of 16% to the extent his or her estate exceeds $1 million.

Recognizing that other states have eliminated a separate estate tax and that affluent Marylanders may be leaving the state to obtain more favorable tax treatment, the legislature passed a bill which will phase in significant estate tax reductions.

The new measure will gradually raise Maryland’s estate tax exemption to match the federal exemption from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. By 2019, Maryland’s estate tax exemption will equal the federal exemption, which is currently $5,340,000, and with the built-in inflation adjustments is projected to be as high as $5.9 million in 2019. In addition, beginning in 2019, the “portability” provisions of the federal law will also apply for Maryland estate tax purposes. To the extent a decedent’s assets do not equal the full amount of the estate tax exemption, the unused amount will be available to shelter assets from tax at the later death of the decedent’s spouse, assuming he or she has not remarried.

Although the changes to the Maryland estate tax provision may relieve individuals from an estate tax liability, it is important to note that there may be a separate inheritance tax assessed if you leave assets to persons outside the family or relatives other than a spouse, descendants or siblings. Maryland and New Jersey are the only two states that have an inheritance tax in addition to an estate tax.

When considering whether your net worth is high enough to merit thinking about estate taxes, you need to include all of your assets in the analysis, including your home, real property, retirement plans, and life insurance. Proper planning can help you defer, minimize and often eliminate estate taxes.
 

 

Topics:  Estate Tax, Gift Tax, Gift-Tax Exemption

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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