More Details on Maryland’s Estate & Inheritance Taxes

Published on
January 26, 2024
Written by
Angel Murphy, Esq
Category
Estate Planning

One of the chief functions of an estate planner is to develop strategies to minimize the taxation of a given estate. Tax is one of the heaviest expenses an estate has to grapple with, and so the minimization of estate taxation can be a very significant project. There are taxes at both the federal and state level which may affect an estate. In the State of Maryland, estates have to contend with an estate tax and an inheritance tax; Maryland is presently the only state in the nation which collects both of these taxes at the state level.

Even though Maryland collects both an estate tax and an inheritance tax, there are many ways to claim exemption. In this post, we’re going to give some key details on both the estate tax and the inheritance tax here in Maryland, including some of the most frequently used methods to claim exemption.

Estate Tax – Tax on the Transfer of Property

A Maryland state-level estate tax is not due on all estates, but only those which have a gross value exceeding a certain minimum amount. The estate tax is due on estates, above the gross value minimum, which derive from a decedent who was either a Maryland resident, or a nonresident who owned either real or tangible personal property in Maryland state. If an estate tax is due on a Maryland estate, the payment of the tax has a pay deadline of 9 months following the decedent’s date of death. The Maryland estate tax is triggered whenever an estate’s gross value equals or exceeds the estate tax exemption amount for the year in which the decedent’s death occurred.

As of the present time, Maryland does not impose an estate tax on any estate with a gross value of $5 million or less. Beyond the $5 million threshold, the estate tax is collected on a graduated basis, and so the greater the value of the estate the greater the tax burden. Maryland has a tax credit system which is specific to the estate tax, and this tax credit system impacts the total amount of tax due on a given estate.

Inheritance Tax – Tax on the Receipt of Property

While the estate tax may accurately be conceived as a tax on the transfer of property, the inheritance tax may be accurately viewed as a tax on the receipt of property. This means that the responsibility for the inheritance tax falls initially on the receiver or inheritor of the property. Unlike the estate tax, the inheritance tax doesn’t require a minimum value of the estate itself to be triggered; in other words, anyone who inherits property may be liable for the inheritance tax, no matter the overall value of the estate. The inheritance tax is collected by the Register of Wills in the local county where the decedent resided. When an inheritor is liable for the inheritance tax, the inheritor pays at a rate of 10%, and this rate applies consistently regardless of the value of the received property.

As mentioned, there are many ways to claim exemption. One category of exemptions is for relatives; the following persons are exempt from the tax: spouse, child (biological or adopted, stepchild or former stepchild, includes all grandchildren), parent, grandparent, and sibling. The following beneficiaries are exempt from the tax: surviving spouse of a deceased child of the decedent, spouse of a child of the decedent, spouse of a grandchild of the decedent, any business entity (i.e. partnership, LLC, etc.)as long as all the owners are exempt, eligible nonprofit businesses from Maryland, eligible nonprofit businesses from out-of-state (case by case basis, depending on the laws of the originating state).

There are additional scenarios which may also lead to exemption for inheritors. For instance, any inheritance which amounts to less than $1,000 is automatically exempt from the tax. There are other scenarios as well; we may come up and reference the remaining scenarios in a future piece.

Contact the Murphy Law Firm for More Information

If you would like to learn more about this topic, or another related issue, reach out to one of the leading estate planning attorneys at the Murphy Law Firm today by calling 240-219-8901.

Angel Murphy

Personable. Passionate. Persistent.

Estate Planning, Tax, Inheritance, estate planning, taxation, Maryland, estate tax, inheritance tax, exemptions, relatives, beneficiaries, estate value, tax minimization

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