March 21st, 2018
The Cost of Dying in Maryland
Author: Ann G. Jakabcin
There is an adage – “nothing is certain except death and taxes” – which is particularly applicable to Maryland residents. Although exposure to federal estate taxes has become less of a concern for many1, Maryland has not one but two separate and distinct death taxes. These taxes are an inheritance tax and an estate tax.
Maryland Inheritance Tax
The Maryland inheritance tax is assessed against certain individuals who inherit property of any kind (except life insurance) from a Maryland decedent or from a decedent who did not live in Maryland but who owned real estate in Maryland. The critical aspect to understand about the Maryland inheritance tax is that it is only imposed if the recipient of the inheritance is unrelated or distantly related to the decedent. The Maryland inheritance tax is therefore not applicable if the inheritance is payable to a spouse, child or other descendants or a sibling, but is applicable if the recipient is a niece or nephew or other more distant relative.
How Much is the Inheritance Tax?
If imposed, the Maryland inheritance tax rate is 10%. If Uncle John, a Maryland resident, leaves each of his three nephews $50,000, each nephew will receive $45,000 and the inheritance tax of $5,000 for each of the three bequests will be paid to the Register of Wills for the county where Uncle John lived. Uncle John has the option to include provisions in his Will or revocable trust agreement to shift the liability for the inheritance tax from his nephews (thus allowing each to receive $50,000) to his estate.
Maryland Estate Tax
Probably applicable to more situations than the Maryland inheritance tax is the Maryland estate tax. This tax is imposed on all Maryland decedents as well as non-Maryland decedents who own Maryland real estate whose “taxable estates” exceed an exempt amount. In 2018, the exempt amount is $4 million but is scheduled to increase to $5 million in 2019. The Maryland estate tax rates range from 0.8% to a maximum of 16%.
What Determines the Value of an Estate?
The Maryland “taxable estate” is the total market value of the decedent’s assets reduced by the balance of all mortgages secured by the decedent’s assets, debts and administration costs. The tax is not imposed on transfers to a surviving spouse or to certain trusts for the benefit of the surviving spouse or to charities. For non-Maryland residents, the estate tax is imposed only on the value of the decedent’s real estate located in Maryland.
What Happens if a Person Qualifies for Both Inheritance Tax and Estate Tax?
If you are unfortunate to be subject to both the Maryland inheritance tax and the Maryland estate tax, some relief is available. The Maryland estate tax is reduced, dollar for dollar, by the amount of the inheritance tax. For example, if Uncle John’s inheritance tax liability was $15,000 and the computation of his Maryland estate tax yields a Maryland estate tax of $100,000, the actual estate tax payment to the Comptroller will be $85,000 and $15,000 for the inheritance tax will be paid to the Register of Wills for the county in which Uncle John lived.
If you have questions about either Maryland “death tax,” or if you would like assistance in developing your estate plan to reduce or eliminate your exposure to either of these taxes, please contact a member of Stein Sperling’s estate planning department at 301-340-2020.
1As of January 1, 2016, the federal estate tax exemption $5.45 million per person and is subject to annual cost of living adjustments.