Media Type: Alert
During its 2014 session, the Maryland legislature approved a bill increasing the exemption from Maryland estate taxes gradually over five years to equal the amount of the federal exemption by 2019. Governor O’Malley signed the Maryland legislation on May 15, 2014.
The exemption from Maryland estate taxes is currently $1 million. In contrast, the exemption from federal estate taxes is now $5.34 million and is indexed annually for cost of living. Additionally, when a married individual dies, the Personal Representative can elect to allow the surviving spouse to add the decedent’s unused federal exemption to his/her own exemption. This concept is known as “portability.” For example, assume John dies in 2014 (having made no gifts reducing the exemption) and leaves all of his estate to his widow, Mary. Because of the unlimited marital deduction, the exemption is unneeded. If John’s Personal Representative makes the necessary election on John’s federal estate tax return, Mary will have available not only her own rising exemption but also John’s unused exemption of $5.34 million (unless she remarries and her new husband predeceases her).
The Maryland legislation provides for increases in the state estate tax exemption beginning in 2015. For deaths which occur after 2018, the federal and Maryland exemptions will be identical. Assuming no change in the federal law, by 2019 Maryland residents with estates valued at less than about $5.9 million (the anticipated federal exemption after cost of living adjustments) will have no exposure to either federal estate taxes or Maryland estate taxes though the 10 percent inheritance tax will continue to apply on most transfers to distant relatives and friends. For a married couple living in Maryland, the state estate tax exemption of a surviving spouse will include the “ported” Maryland exemption of a predeceased spouse who dies after 2018.
The phase-in of the increased Maryland estate tax exemption is as follows:
2019 same as federal exemption.
Despite the fact that the legislation may significantly reduce the number of Maryland residents who are in need of tax planning, this does not mean that estate planning is unnecessary. There are many extremely important reasons for individuals to make sure that their estate plans are in good order:
For more information on Maryland’s estate tax exemption or on other estate planning matters, please contact one of the attorneys in our estates and trusts department at 301-340-2020.
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