Maryland is one of a small number of states that imposes separate inheritance and estate taxes. Unlike the estate tax that is charged on taxable estates above a high threshold, Maryland’s 10% inheritance tax can apply to friends, aunts, uncles, nieces, nephews and other family members receiving property having a value in excess of $1,000.00.
Transfers Subject to Maryland Inheritance Tax
The inheritance tax is assessed against property passing to a non-exempt person from the deceased under the terms of a trust, a will, by deed, joint ownership, intestacy laws or payable on death or other designations or appointments. Further, if a material portion of the decedent’s property has been gifted within two (2) years prior to death, property received by non-exempt persons is subject to the inheritance tax.
There are, however, transfers exempt from the tax. The most common is transfers to, or for the benefit of, an exempt person. A second exemption is the transfer of a primary residence that is (1) owned by domestic partners (as defined by the statute with required evidence of their relationship); and (2) held in joint tenancy at the time of a partner’s death. Other exemptions are gifts to a nonprofit organization, life insurance benefits not payable to a Maryland estate, transfers to a person of less than $1,000.00 and distributions from a Maryland small estate.
Who is Exempt from Maryland Inheritance Tax?
Certain family members are exempt from Maryland inheritance tax. Exempt family members are:
- A child or other lineal descendant of the decedent and their spouses
- A Spouse of the decedent
- A Parent or Grandparent of the decedent.
- A Stepchild or Stepparent of the decedent and their spouses
- A Brother of Sister of the decedent.
A corporation or limited liability company is also an exempt if all its owners are exempt persons other than the decedent’s siblings.
AFSL Attorneys Can Assist with Options
As with income and estate taxes, Maryland’s inheritance tax can affect estate planning. The attorneys at AFSL can identify whether your plan is impacted by this tax. Many times, such as when a childless client wishes to transfer funds to her adult nieces and nephews, AFSL attorneys can suggest a tax efficient way to accomplish this goal. If you have any questions about your estate plan or Maryland’s inheritance tax, please contact Jon Azrael or Paul Schwab today.