Maryland made the not-coveted Forbes list of places “where not to die in 2019.”  To compound the insult, Forbes singled out Maryland as the worst-of-the-worst:  “Of the 17 states and the District of Columbia that levy an estate tax or inheritance tax, Maryland is the sole jurisdiction with both levies.” However, each Maryland estate planning attorney at our firm knows that these levies are not as bad as they seem at first glance.

A Look at Maryland’s Estate Tax

As dire as making the Forbes list sounds, it is good to keep this in perspective.  The Maryland estate tax threshold went to $5 million in 2019.  Prior to this change, the threshold was slated to track the federal estate tax threshold which is now over $11 million.

The 2018 fiscal note on the change quantifies it’s impact.  Without a $5 million cap, it was estimated that only 40 Maryland estates with a state estate tax liability would be required to file returns in 2019.  Compare that to 2018 when the Maryland cap was $4 million and 188 taxable estates had to file returns.

Understanding Maryland’s Inheritance Tax

Maryland, of course, also has an inheritance tax. The Maryland inheritance tax is imposed on any bequest over $1,000 going to various people not included on a list of exempt individuals.  Those exempt individuals constitute what, in effect, the General Assembly believes constitutes a decedent’s close family member (spouse, children, stepchildren, etc.).  The list, however, is far from perfect. For example, a child and stepchild make the list as exempt recipients, as do lineal descendants of a child and a stepchild, but not the stepchild of a child.  A brother and sister of a decedent make the list but not the nephews and nieces.

The inheritance tax paid operates as an offset to the state estate tax.  Thus, of the tax returns filed in Maryland with estate tax liability, part or all of that liability may be offset by the inheritance tax.

A Maryland Estate Planning Attorney Can Help You Understand What This Means For You

Unlike the federal estate threshold, the Maryland threshold of $5 million is not indexed for inflation.  Like the federal tax, however, it is now portable.  This means that by filing the appropriate tax return, a surviving spouse may carry forward the deceased spouse’s unused tax exemption equivalent to be used at the second death along with the surviving spouse’s own exemption equivalent.  Also, Maryland permits a state-only QTIP to be applied for certain marital trusts even when no federal QTIP is required.  Portability and a state-only QTIP offer good planning opportunities for clients especially for those with combined assets equal to or less than $10 million.  That means that the Forbes list is not relevant to many Marylanders as long as they do appropriate planning. Contact our Maryland estate planning attorney for help with meeting your long-term planning goals.