Maryland Estate Tax as of April 8, 2014
In 2004, the State of Maryland "decoupled" or disconnected its estate tax system from the federal estate system and enacted a cap of $1,000,000 on its estate tax exemption, regardless of the level of the federal estate tax exemption. The maximum Maryland estate tax rate is 16%.
Recently, the House and the Senate each passed identical Maryland Estate Tax bills (H. B. 739 and S. B. 602) aimed at "re-coupling" the Maryland estate tax system to the federal estate tax system in stages. Specifically, they both provide the following:
1. Both bills propose a gradual increase in the Maryland estate tax exemption amount to the federal estate tax exemption amount over a five (5) year period.
2. Specifically, the Maryland exemption will be
a. $1,000,000.00 in 2014,
b .$1,500,000.00 in 2015,
c. $2,000,000.00 in 2016,
d. $3,000,000.00 in 2017,
e. $4,000,000.00 in 2018, and
f. equal to the federal exemption amount in 2019. The federal exemption is currently
$5,340,000.00 and it is indexed for inflation.
3. The Comptroller's Office is taking the position that the bills propose a re-coupling of the Maryland estate tax system with the federal estate tax system in 2019 and interpret that to mean that Portability will be available in Maryland in 2019. Portability is a surviving spouse ability to use a deceased spouse's unused estate tax exemption.
4. The Bills include a provision which would minimize the Maryland estate tax related to qualified agricultural property ("Property") which passes to a qualified recipient. Specifically, it caps the Maryland estate tax assessed on an estate that includes such Property, assuming it is valued in excess of $5,000,000, as follows:
a. 16% of the excess of the value of the taxable estate (not including the value of the Property) over the then current applicable exclusion amount
b. plus 5% of the excess of the value of the Property over $5,000,000.00
c. For example, assume D died in 2014 and his gross taxable estate, which includes qualified agricultural property ("QAP"), is valued at $8,000,000.00. The QAP is valued at $6,000,000.00. In 2014 the Maryland exemption amount is $1,000,000.00. D's maximum Maryland estate tax exposure would be computed as follows:
- 16% x ($8,000,000.00 - $6,000,000.00 - $1,000,000.00) = $160,000.00 plus
- 5% x ($6,000,000.00 - $5,000,000.00) = $50,000.00
- Total Maryland Estate Tax would be $210,000.00 or ($160,000 + $50,000)
5. The bills would take effect July 1, 2014.
The Governor is yet to sign either bill.
Feel free to contact Esther Streete regarding the status of the estate tax laws and you estate planning needs. She can be reached at 410-266-9909 Ext. 316.