Maryland is one of the fourteen states that impose an Estate Tax and one of six states that impose an Inheritance Tax. Unfortunately for Maryland residents, it is one of only two states that impose both (the other is New Jersey), although not every estate is subject to either tax. However, if a deceased person lived, worked, or owned property in the state of Maryland, then Estate and Inheritance Taxes must be considered. Let’s take a look at what you need to know about Estate and Inheritance Taxes in Maryland.
Who is Exempt From Estate Taxes in Maryland?
For people dying in 2020 and afterwards, the Federal Estate tax exemption is $11.8 million and the Maryland Estate Tax exemption is $5 million. In other words, you will not need to worry about your estate paying any Estate Taxes unless your estate is worth more than $5 million at the time of your death, and you will only need to worry about Maryland Estate taxes if your estate is worth between $5 million and $11.8 million. Surviving spouses are exempt from both Maryland and Federal Estate taxes, no matter what the amount. Estate Taxes are not imposed on the proceeds of certain types of life insurance that is paid directly to a beneficiary, but may be imposed on other assets—even if those assets do not go through probate. The Estate Tax rules for estates over the exemptions can be complicated.
Who is Exempt From Inheritance Taxes in Maryland?
The Inheritance Tax in Maryland differs from the Estate Tax in a number of important ways. Unlike the Estate Tax, which is imposed on the Estate, the Inheritance Tax is imposed directly on the non-exempt beneficiary receiving the funds. Most heir types are exempt from the inheritance tax in Maryland: spouses, children, parents, siblings, grandparents, grandchildren, and all other lineal descendants of the deceased. However, nieces, nephews, cousins and non-related persons are subject to the tax. (A non-profit organization is also exempt.) The tax is imposed at a rate of 10% of everything that the non-exempt person receives (over a minimum amount of $2,000), whether or not the money was part of the deceased’s probate estate. For example, if a non-exempt person receives $10,000 as the payable on death beneficiary of a Maryland deceased’s bank account, they are subject to an inheritance tax of 10% on that money, or $1,000.
Estate Taxes and Inheritance Taxes are complex, so make sure to meet with an Estate Planning Lawyer in Maryland to see how to eliminate or reduce these taxes.
What About Gifts Made Before Death?
“Deathbed gifts” or gifts given “in contemplation of death” may be subject to the estate tax even though they were distributed before the death of the estate owner. Gifts made two years up to death may be taxed, depending on the circumstances and who is receiving them.
What Will You Owe?
Estate and Inheritance Taxes are based on the “clear value” of the property’s market value. After the death of the person who owned the estate, the personal representative will file an inventory of the deceased’s assets with probate court. During the probate process, the clear value of the property will be calculated and the tax imposed. In the event that there are no formal probate proceedings but a non-exempt person receives money from the deceased, the county Register of Wills will send a bill for the 10% Inheritance Tax directly to the inheritor.
Work With an Estate Planning Lawyer in Maryland
If you have questions about inheritance, DK Rus is your legal resource. We can address your concerns about every aspect of estate planning from drafting a will to handling probate and everything in between. Contact us today for more information.