Estate planning can be a difficult process if you’re not well versed in the laws and regulations surrounding the passing of your property and assets after death. So with this in mind, let’s learn more about estate taxes in Maryland!
What is Estate Tax?
If the value of an estate exceeds a limit set by the law, an estate tax is imposed on the heir’s inherited share of the estate. These taxes can be very high in certain situations, and there is a general concern among those with significant assets that their beneficiaries may not receive the total or majority of the estate being passed on. Proper estate planning, however, can be carried out to better understand these taxes and potentially minimize their application.
When is Estate Tax Applied?
On a federal level, estate taxes are imposed on estates in excess of $5,490,000.
On a state level, Maryland currently imposes a tax on estates that are in excess of $3,000,000. This is scheduled to increase to $4 million in 2018 and $5 million in 2019.
The current Maryland estate tax rate is 16%. If your property is passed on to anyone who is not a close relative to you, a 10% inheritance tax is also applied to the value of the property. This tax would be applied to anyone receiving the estate who is not your: spouse, parent, grandparent, child, grandchild, or sibling.
How Can I Avoid or Minimize These Taxes?
Luckily, there are techniques which can be utilized during estate tax planning to help reduce the amount of taxes applied to your estates. For example:
- Credit Shelter Trust – Under estate tax laws, it is permitted for one spouse to shelter the first deceased spouse’s property from estate tax through the use of a trust. When the second spouse passes away, all property held by the credit shelter will pass to the children free of estate tax.
- Simple Bypass Trust – This trust is for those with significant assets and lets you and your spouse take full advantage of the estate tax credit. After death, the assets in the trust are excluded from the estate, which reduces the value of the estate and limits estate taxes owed.
- Lifetime Gifting — A schedule of planned gifting can remove assets from your estate and avoid estate and inheritance taxes on these amounts.
Still not sure how it all works? DK Rus Law is here to help! Kathleen is an estate lawyer in Parkton and Westminster, MD and has more than 30 years of experience in helping clients with all of their estate planning needs. For more information on her services, or to inquire further about the taxes involved in estate planning, contact Kathleen today!