Estate planning in Maryland involves several considerations, one of which is the Maryland inheritance tax. Maryland is one of the few States that still imposes such a tax. Understanding how this tax impacts your estate plan is essential for making informed decisions. Here’s what you need to know:
1. What Is the Maryland Inheritance Tax?
The Maryland inheritance tax is a tax imposed on the right to receive property from a deceased person’s estate. Unlike the federal estate tax, which is based on the total value of an estate, the Maryland inheritance tax is based on the relationship between the deceased and the beneficiary. It varies depending on this relationship, with some beneficiaries exempt from the tax.
2. Exemptions and Rates
The following individuals/entities are exempt from the inheritance tax:
• spouse
• child (biological or legally adopted), stepchild, former stepchild, grandchild, or other lineal descendant
• parent (including stepparent or former stepparent)
• grandparent, or
• brother or sister.
The law also exempts these beneficiaries from tax:
• the spouse of a child, grandchild, or other lineal descendant of the deceased person
• the surviving spouse of a deceased child (or other lineal descendant) of the deceased person
• a business (corporation, partnership, or limited liability company) if all of its owners (stockholders, partners, or members) are exempt—for example, if all the partners of a partnership are family members of the deceased
• Maryland nonprofit organizations that have tax-exempt status under section 501(c)(3) of the Internal Revenue Code
• other nonprofits, depending on the inheritance tax laws of the states where they are organized.
And that isn’t even the entire list of exemptions. No tax is imposed on the transfer of:
• the proceeds of a life insurance policy that go to a named beneficiary (not to the deceased person’s estate)
• inheritances of less than $1,000
• amounts the deceased person received as compensation for Holocaust-related losses
• the deceased person’s primary residence when it transfers to the deceased person’s domestic partner, if it was owned by the deceased person and domestic partner as joint tenants.
Finally, if the estate qualifies for simplified probate as a small estate under Maryland law (meaning the total value of all probate property is less than $50,000), there is no inheritance tax due.
3. Gifts Made Before Death
Some gifts are subject to Maryland inheritance tax even if they’re made while you’re alive. Gifts made “in contemplation of death”—so-called “deathbed gifts”—are subject to the tax. So are gifts that are a “material part” of your property made within two years of your death. (Md. Code Ann. [Tax-Gen] § 7-201.)
• Surviving spouses are exempt from the Maryland inheritance tax.
• Children, including stepchildren, parents, grandparents, and their respective spouses are also exempt because it is considered a “lineal” tax.
• Other beneficiaries, such as siblings and more distant relatives, face a 10% tax rate.
4. Implications for Estate Planning
Understanding the Maryland inheritance tax is crucial for estate planning. Depending on your beneficiaries’ relationships to you, the tax can significantly impact the amount they ultimately receive from your estate. This means you should consider the tax when deciding how to distribute your assets and whether to use trusts or other planning tools to minimize its effects.
5. Seek Professional Guidance
To navigate the complexities of estate planning and the Maryland inheritance tax, it’s advisable to consult with an experienced estate planning attorney. They can help you create a tax-efficient plan that aligns with your goals while minimizing the impact of the inheritance tax on your beneficiaries.
In conclusion, the Maryland inheritance tax is an important factor to consider when planning your estate. By understanding the implications and seeking professional guidance, you can create a tax-efficient plan that protects your assets and ensures your beneficiaries receive the maximum benefit. For more information, contact [email protected] to consult with an experienced estate planning attorney.