Recent Federal and Maryland Estate Tax Law Updates
Federal Estate Tax
Major tax reform was approved by Congress, and on December 22, 2017, President Donald Trump signed it into law as the Tax Cuts and Jobs Act. Although the new law fell short of repealing or eliminating the federal estate tax, it limits its applicability. Following is a summary of the estate tax implications of the new law:
- The new law increased the exemption to $10,000,000.00, indexed for inflation, for the federal estate tax, the generation-skipping transfer (“GST”) tax, and the gift tax systems. The indexed exemption is approximately $11,200,000.00 in 2018.
- The estate tax system and the gift tax system remain unified. This allows access to the full exemption to fund lifetime gifts, above and beyond gifts using the annual gift tax exclusion which is now $15,000 (as a result of indexing, that represents a $1,000.00 increase from the prior $14,000.00 annual gift tax exclusion). The annual exclusion can be doubled if both spouses join in.
- The maximum estate, gift and GST tax rate remains at 40%.
- “Portability” is still available. Specifically, the unused estate tax exemption of a deceased spouse may be used by the surviving spouse, provided certain rules are complied with. Hence, with proper planning, a married couple can effectively shelter up to $22.4 million is assets.
- The law is scheduled to sunset beginning January 1, 2026 and at such time, the federal estate tax exemption will revert back to $5,000,000.00, indexed for inflation.
Maryland Estate Tax
In Maryland, estate tax exemption increased by $1 million to equal $4 million effective January 1, 2018. This increase in the Maryland estate tax exemption is part of a 2014 law which provided for the gradual increase in the Maryland estate tax exemption each year until 2019, when it was scheduled to match the federal basic exclusion amount. Under the 2014 law, the Maryland estate tax exemption was scheduled to automatically jump from $4 million in 2018 to $5.6 million, the then anticipated 2019 federal estate tax exemption. From that time forward Maryland’s estate tax exemption was to be coupled to the federal estate tax exemption.
The increase in the federal estate tax exemption as detailed above was not anticipated by the Maryland legislators. Thus, on April 5, 2018, Maryland enacted new legislation that decouples from the federal estate tax exemption and limits the Maryland estate tax exemption to $5 million in 2019 (with no adjustment for inflation in future years). Additionally, for decedents dying after December 31, 2018, the new Maryland law permits the transferability of a deceased spouse’s unused Maryland estate tax exemption to a surviving spouse (so-called “portability”). This law takes effect as of July 1, 2018. Hence, beginning January 1, 2019, the Maryland estate tax exemption amount will be limited to $5 million, but with proper planning, a married couple can effectively shelter up to $10,000,000.00 in assets from Maryland estate tax.
I recommend that you review your existing estate plan with us to make sure that it still meets your goals in light of the new estate tax laws. For a detailed explanation of how these changes affect your current estate plan or to set up a meeting to review your current estate plan against these changes in the law, please call Esther A. Streete at 410-266-9909.