MARYLAND ESTATE TAX PLANNING

Prepared by: Valerie A. Rocco, July 2014

Earlier this year Governor O’Malley, signed legislation changing the way Maryland estate tax is assessed. Although this is significant legislation, the law does not change how Maryland inheritance tax or income taxes are assessed.

Maryland estate tax is levied upon the amount of a decedent’s “taxable” estate which exceeds $1,000,000.00.  As noted the below newly enacted legislation provides for an increase in the amount which is exempt from Maryland estate taxes, through 2019 when that amount will equal the federal estate tax exemption of $5,340,000.00.

Many believe that this estate tax legislation was enacted because a significant number of Maryland residents were changing their domicile from Maryland to Florida and other states which have no estate tax.

Prior to the enactment of this law, Maryland imposed estate tax on estates valued at more than one million dollars. In addition to Maryland residents relocating to other states, this assessment made it difficult for attorneys to prepare documents which addressed both Maryland and federal estate tax exemptions, since the federal estate tax exemption, currently set at $5,340,000 was significantly higher than the Maryland $1,000,000.00 exemption.

The new Maryland Estate Tax law provides for Maryland Estate tax to equal the federal estate tax exemption by 2019. The increased Maryland estate tax exemption will be phased in as follows:

Year Of Death    Estate Tax Exemption

      2014                 $1,000,000.00

      2015                 $1,500,000.00

      2016                 $2,000,000.00

      2017                 $3,000,000.00

      2018                 $4,000,000.00

      2019                 $5,340,000.00 plus inflation index

It is important to note that this new Maryland estate tax legislation does not negate the need for Maryland residents to engage in estate tax planning to take full advantage of both federal and state exemptions.  Certain provisions may be included in Wills and Revocable Trusts, which can fully utilize the federal estate tax exemption, and postpone the payment of Maryland estate taxes until the death of a surviving spouse.  Additionally, since Maryland does not currently have a gift tax, it may be beneficial for some individuals to make gifts of their property to reduce their estate to below the Maryland exemption amount.  However, given the effect that gifting may have on medicaid planning and income tax assessment, it is important that individuals consult with their attorney or CPA prior to making gifts.