In the realm of estate planning, it’s crucial to comprehend the distinctions between inheritance tax and estate tax, as they can significantly impact the distribution of assets in Maryland.
Estate Tax:
Maryland imposes an estate tax on the total value of a deceased person’s estate. This tax is paid by the estate itself before distribution to beneficiaries. The exemption threshold determines whether an estate is subject to this tax, and it varies based on the year of death. Understanding these thresholds and rates is vital for effective tax planning.
Inheritance Tax:
Maryland is one of a few states that levies an inheritance tax. Unlike the estate tax, inheritance tax is based on the relationship between the deceased and the beneficiary. Close relatives, such as spouses and children, typically have lower or no tax rates, while more distant relatives or non-relatives may have higher rates.
Key Differences:
1. Who Pays: Estate tax is paid by the estate before distribution, while inheritance tax is paid by the beneficiary receiving the inheritance.
2. Tax Rates: Estate tax rates are based on the estate’s value, while inheritance tax rates depend on the beneficiary’s relationship to the deceased.
3. Exemptions: Estate tax exemptions vary based on the estate’s value, while inheritance tax exemptions are determined by the beneficiary’s relationship.
Navigating inheritance tax and estate tax in Maryland necessitates careful planning and understanding of the nuances involved. Consulting with an estate planning professional can help you develop strategies to minimize tax liabilities and ensure that your assets are distributed in accordance with your wishes. Contact [email protected] today to speak to an estate planning attorney.