Maryland Estate Tax Exemption Set to Rise

Private Client Alert

On May 15, 2014, Governor O'Malley signed into law new legislation that will gradually increase the Maryland estate tax exemption from the current $1 million to match the indexed federal exemption in 2019.  This means that Maryland's estate tax exemption will now be increasing annually.  These changes will warrant review of the tax planning in wills and revocable trusts for large Maryland estates.  Sophisticated drafting techniques will be required to take advantage of these increases should death occur during the phase-in period.

The Maryland estate tax exemption will remain $1 million for decedents dying in 2014; thereafter, it will increase as follows:

a. $1,500,000 for a decedent dying in 2015;
b. $2,000,000 for a decedent dying in 2016;
c. $3,000,000 for a decedent dying in 2017;
d. $4,000,000 for a decedent dying in 2018; and
e. for a decedent dying in 2019, the Maryland exemption will be equal to the federal exemption amount ($5,000,000  indexed for inflation from 2011).

Once the phase-in period is complete, Maryland's estate tax will have effectively incorporated "portability," a rule allowing a married person to give any unused estate tax exemption at death to his or her spouse.  Further, a bill has been introduced in the Maryland Senate to make portability available immediately; if passed, that bill would be applicable to decedents dying after December 31, 2013.  Although portability is now a permanent feature of the Federal estate tax system, Maryland is one of the first states to pass a law providing its citizens with the same relief from state estate taxes. 

Maryland's top estate tax rate of 16% remains unchanged.  In addition, the new law does not affect Maryland's inheritance tax, which applies to certain recipients of inherited Maryland property.  The inheritance tax does not apply to property inherited by a close relative of the deceased (e.g. a spouse, child, stepchild, sibling, grandchild, parent, or spouse of a child).

If you would like to review your estate plan in light of these changes, please contact:

Beth Shapiro Kaufman

Anne J. O'Brien

Megan E. Wernke

William D. Fournier

For half a century, Caplin & Drysdale has been a leading provider of a full range of tax, tax controversy, and related legal services to companies, organizations, and individuals throughout the United States and around the world. With offices in New York City and Washington, D.C., the firm also provides counseling on matters relating to bankruptcy, creditors' rights, exempt organizations, employee benefits, private client services, corporate law, white collar defense, complex litigation, and political activity.

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This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

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