In our most recent piece, we discussed some basic facts regarding the federal estate tax, Maryland’s estate tax, and Maryland’s inheritance tax. We covered the foundational things, such as the threshold for state taxation, the threshold for federal taxation, current tax rates, and so forth. This post will discuss some of the other issues involved with Maryland’s estate tax.
The Concept of Portability for Spouses
Portability is a fairly generous notion in Maryland’s estate tax program. Portability is the shifting of an unused portion of the exemption to a surviving spouse. Consider the following scenario: a person passes away and has a gross estate valued at $2 million. Since Maryland’s exemption is $5 million, an “unused” amount is $3 million. If the person passes away and has a surviving spouse, then this spouse can add the unused portion of the decedent’s exemption to his or her exemption. So, in this same scenario, the surviving spouse would have a total exemption of $8 million ($5 million + $3 million used portion).
If you think about it for a moment, this is a major benefit to Maryland residents. This is why most jurisdictions throughout the country don’t allow portability.
Deductions to Gross Estate
Maryland’s estate taxation exemption is $5 million. So, a Maryland resident’s gross estate needs to exceed $5 million to trigger the tax. The question becomes: what is included in a person’s gross estate in Maryland? In computing gross estate, Maryland residents need to factor in several deductions. One of these is the “marital deduction,” which is anything left to the surviving spouse that you can deduct from the gross estate. Next, you can also deduct charitable contributions from the gross estate. Charitable contributions are gifts to certain qualified organizations – charities, religious institutions, etc. Finally, the estate can also deduct certain debts and administrative expenses. For instance, you can deduct funeral costs, attorney’s fees, and other expenses from the gross estate.
Deadlines for Filing an Estate Tax Return
The State of Maryland imposes a nine (9) month deadline to file a state-level estate tax return following the date of death. If the estate fails to file a return by this deadline, then a Maryland tax employee will issue a notice for the return. This notice essentially gives an additional grace period of 30 days. If the return still hasn’t been filed after this 30-day grace period, Maryland Tax Employee will impose a penalty of 25%. That’s a hefty penalty, so filing the estate tax return timely is imperative.
Contact the Murphy Law Firm for More Information
In a later piece, we may return and discuss the Maryland inheritance tax in greater detail as well, as there is still plenty to know about that topic. For now, if you’d like more information, contact the Murphy Law Firm today by calling 240-219-8825.