When Do Maryland Estate and Inheritance Taxes Affect Your Plan?

Maryland collects both an estate tax and an inheritance tax, and a Columbia, MD estate planning attorney can show you when each tax is likely to affect you and your loved ones and how best to minimize the effects.

Maryland Estate and Inheritance Taxes

The estate tax measures the value of what you leave as a whole; the inheritance tax is applied against individuals who inherit a particular asset. Maryland is the only state that still imposes both, though some assets are exempt from probate.

Estate Tax Details

The estate tax applies if your federal gross estate, plus adjusted taxable gifts, plus certain previously elected marital-trust property, equals or exceeds five million dollars. It only applies if you’re a Maryland resident when you die, or if you’re a nonresident owning real or tangible personal property with a taxable situs in Maryland. The return is due nine months after death, and the tax is due on that same date even if the Comptroller grants more time to file.

Property passing to a surviving spouse who is a United States citizen can qualify for a marital deduction, which defers the estate tax until they pass away. Maryland also lets a surviving spouse use the unused portion of the first spouse’s five-million-dollar exclusion.

Inheritance Tax Details

The inheritance tax is a tax on the “privilege” of receiving property from a decedent. Since 2000, neither a spouse, child, grandchild, great-grandchild, stepchild, parent, grandparent, sibling, nor the spouse of a child has to pay any inheritance tax, and a surviving registered domestic partner is exempt now, as well. Any organizations described in Internal Revenue Code section 501(c)(3) are also exempt.

Nieces and nephews, uncles and aunts, cousins, friends, or unmarried partners who are not registered domestic partners have to pay 10% of the value of their inheritance to the state. This is true mostly without regard to the size of the estate, though gifts under $1,000 and anything that is dealt with as a small-estate filing are exempt.

How They Work Together

When both taxes overlap, the inheritance tax gets paid to the Register of Wills and is subtracted from the gross Maryland estate tax. If the inheritance tax equals or exceeds Maryland’s computation of the credit for state death taxes, no Maryland estate tax remains.

Get Help From an Estate Planning Attorney in Columbia, MD

There are various strategies you can use to deal with both these taxes. Living trusts are a great way to take assets out of your estate and designate them for a beneficiary. Charitable giving can reduce the size of your estate, while strategic personal gifts under certain limits can give assets to your loved ones tax-free while reducing the size of the estate. There are more options available.

Contact us today at Elville and Associates in Columbia or Rockville today to schedule a free consultation on your estate. We can look through your inventory, every beneficiary form, and the current draft of your will or trust and help you design an estate plan that protects you and your loved ones for the future.

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