Maryland is one of only six states that impose an inheritance tax as well as an estate tax on top of the Federal estate tax. Many states are eliminating or have eliminated death taxes altogether. But only these six states impose additional state-level death taxes on top of the federal tax.
Under current law, estates that are valued below $5 million dollars are exempt from federal estate tax. So only estates worth more than that have to pay a tax. In Maryland, the exemption is now being raised from $1M to a projected $5.9M in 2019 – which is the current federal exemption indexed for inflation.
Impact of an Inheritance Tax
But there is still that pesky additional inheritance tax. Depending on who you leave your money to, they may be required to pay 10% of that inheritance as a state tax. There are exemptions. Essentially blood (or adopted) relatives and their spouses are exempt from the inheritance tax. So leaving money to your spouse, parents, siblings, children, grandkids, and all of their spouses will not trigger the inheritance tax. But, if you want to leave something to a favorite aunt or uncle, niece or nephew, cousin, or best friend from high school, you will have to tax into account that they (or your personal representative) will have to pay that 10% before any funds are distributed.
Planning Around an Inheritance Tax
Then what are we to do when it comes to proper estate planning. Keeping up with the law is a good start. Urging our representatives to repeal the inheritance tax is a logical next step. And simply understanding the ramifications of how and to whom you leave money in your estate plan is the kind of critical evaluation that an estate planning attorney can provide.
Of course, we could all move. The tropics sound nice!