• Major Change to the Maryland Estate Tax
  • June 9, 2014 | Authors: Marc P. Blum; Cheri Harman Dorsey; Lowell G. Herman; Laura L. Johnson; Thomas J. Sessa
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • Maryland Estate Tax - Maybe Florida is a little too humid after all. Governor O’Malley recently signed into law legislation making a significant change to Maryland’s estate tax law. Prior to this new law, Maryland imposed an estate tax on estates valued at more than $1,000,000. This was so even though the federal estate tax applicable exclusion amount (commonly referred to as the “estate tax exemption”) is currently $5,340,000 (and is inflation indexed). Maryland has been “decoupled” from the federal estate tax exemption since 2004. Many believe that this decoupling has been an important factor in quite a few Maryland residents changing their residency to states that have no state estate tax at all, such as Florida and Virginia. The new law returns Maryland to the federal estate tax exemption amount on a phased in basis, as follows:

     

    Year of Death                            

    Estate Tax Exemption

     

    2014

    $1,000,000

    2015

    $1,500,000

    2016

    $2,000,000

    2017                                           

    $3,000,000

    2018

    $4,000,000

    2019 and later                            

    The federal amount, indexed for inflation (currently

     

    $5,340,000; estimated amount is $5,900,000)

    “What Do I Do From Now Until 2019?”

    • Married persons - In the years since Maryland has been decoupled from the federal estate tax, many of our married clients have chosen to include language in their Wills or Revocable Trusts, which is designed to take full advantage of their federal estate tax exemptions but postpone any Maryland estate tax until the death of the surviving spouse. For those who want to delay any Maryland estate tax until the survivor’s death, this type of language should still be included until 2019.

    • Use of Gifts to Reduce the Maryland Estate - Additionally, because Maryland does not have a gift tax, some clients have made large gifts to reduce their estates below $1,000,000 to eliminate any Maryland estate tax, or to at least lessen the eventual Maryland estate tax even if those gifts do not bring the estate below the $1,000,000 threshold. In the computation of Maryland estate tax, Maryland does not add back gifts made during your life [whereas federal law requires that the amount of gifts in excess of your annual exclusion (currently $14,000 per recipient) and exclusions for gifts for tuition and medical expenses be added back in calculating federal estate tax]. Do not make such gifts without first consulting with your estate tax planning attorney or CPA. Before making such gifts, you need to discuss important factors, such as your economic needs and the income tax consequences the recipient would incur upon the sale of assets received by lifetime gift versus inheritance. Generally, assets received through a lifetime gift have an income tax basis equal to the donor’s income tax basis, and assets received by inheritance receive an income tax basis equal to their date of death value. (There are exceptions to this rule, a notable one being that the assets in a retirement account, such as an IRA, do not receive the benefit of a “step-up” in basis upon the owner’s death.)

    As we have mentioned in prior Legal Bulletins, please contact us to make sure that your Will or Revocable Trust, and your estate planning, address key significant changes made to the Maryland estate tax in recent years and yet again in 2014.

    Major Revamping of Maryland Trust Law

    Maryland Trust Act - 2014. The Governor also signed into law the “Maryland Trust Act,” which sets forth a massive overhaul of trust law in Maryland. The Maryland Trust Act attempts to codify parts of Maryland’s common law (case made law) on trusts, taking into account aspects of Maryland’s previously existing trust statutes and the Uniform Trust Code. The breadth of the new law, dealing with both substantive as well as procedural aspects of trust law (for example, rights of beneficiaries, obligations and liabilities of trustees), is so wide that a discussion of it is far beyond the scope of this Legal Bulletin. However, please call us to determine if the new law makes modifications advisable concerning ongoing trust administration procedures or your planning documents.

    Summer Clean-Up

    Put Yourself First for a Change! Summer is a great opportunity to take some time to review your estate planning - gather updated financial information and think about your current wishes. It is so easy to get caught up with work and daily activities that things like your estate planning get pushed to the back burner. Do not wait until a crisis to address these matters. The best decisions are made when you have the benefit of reflecting upon them in a calm, thoughtful manner. Estate tax and planning laws have changed dramatically over the past 10 years, and your personal circumstances may have, too.