1.4.1 The Act generally provides that federal (and Maryland) estate tax should be apportioned among all those interested in the estate in the proportion that each person’s interest bears to the total estate value.
1.4.2 “Person interested in the estate” includes non-probate legatees and recipients of inter vivos gifts where the gift may generate the federal estate tax: “[A]ny person who is entitled to receive or has received, from a decedent while alive or by reason of the death of a decedent, any property or interest in property included in the taxable estate of the decedent.” In Shepter v. JohnsHopkins University, 334 Md. 82 (1994), the Court held that this included adjustable taxable gifts that had (or should have) reduced the available credit. In 1995, the General Assembly reenacted § 7-308 to legislatively reverse the result of Shepter. Thus, the apportionment does “not include any interest of the decedent that is not included in the value of the decedent’s taxable estate determined under § § 2001(b)(1)(A) and 2051 of the Internal Revenue Code of 1986.” Section 2. ch. 555, Acts 1995.
1.4.3 The statutory apportionment does not apply if a contrary instruction is in the Will. § 7-308(k).
1.4.3.1 In Johnson v. Hall, 283 Md. 644 (1978), the Court of Appeals held that a general direction to pay taxes is not a direction to pay such taxes from the residuary estate. In Johnson, the Will directed that “I direct that … all estate and inheritance taxes, be paid as soon after my death as can lawfully and conveniently be done.” The court held that “No magical or mystical word or phrase is required to shift the burden of estate taxes from the legatees and devisees to the residue; however, for us to recognize the testatrix’s ‘boiler plate’ reference to the payment of debts, expenses, and taxes in the first clause of her will states an intent not to apportion would require that we be clairvoyant.” (at 655). The purported deficiency in the language was that the personal representative was not directed from where the money was to come. The tax clause should have a direction that the taxes be paid “from my residuary estate.”
1.4.3.2 In Pfeufer v. Cyphers, 397 Md. 643 (2007), the will left the entire residuary estate to four people, three of whom were exempt from inheritance tax but one of whom was liable for the inheritance tax. The issue was whether a directive to pay all taxes from the residue meant that the residue was liable for the inheritance tax thereby, in effect, having that tax shifted to the tax-exempt heirs. The Court upheld the clause. Pfeufer has a detailed discussion of Johnson v. Hall and tax clauses in general. The inheritance tax is a tax on the “privilege of receiving property that passes from a decedent.” Section 7-202 of the Tax-General Article of the Annotated Code of Maryland. The tax is payable by the person to whom property passes and not on the estate of the person from whom it passed. Mercantile-Safe Deposit & Trust Co. v. Register of Wills, 252 Md. 311 (1969). Nevertheless, Pfeufer held that a tax clause can shift the tax to the estate.
