Let’s start with the good news. The vast majority of us are not subject to federal estate taxes because the current threshold is $11.7 million for individuals and $23.4 for couples filing jointly.
Unfortunately, the threshold for Maryland’s estate tax is considerably less. If a Maryland resident passes away in 2021 and has an estate with a gross value in excess of $5 million, his or her estate may be subject to Maryland estate tax. This is also true for people who own a commensurate amount of property in Maryland but are not actually residents of our state.
What constitutes the “gross” value of an estate? In general, it includes all property, personal or real, intangible or tangible, in which the decedent had an interest. To be more specific, a person’s gross estate can include:
- Joint assets with rights of survivorship
- Transfers made without adequate consideration
- Personal belongings
- Bank accounts
- Certificates of deposit
- Certain life insurance proceeds
- Certain business interests
- Funds from retirement accounts
- Real estate
- And more
The value of this property must be based on an appraisal by a Certified Appraiser.
It is important to note that assets left to a surviving spouse are not subject to Maryland estate tax, regardless of their value. However, this may not be the best long-term asset protection solution since these assets will be subject to estate tax upon the death of the second spouse. Also worth noting is the fact that numerous expenses can be deducted to reduce one’s exposure to Maryland estate tax.
As for how Maryland estate tax is calculated: According to the Maryland Comptroller, the credit used to determine the tax cannot exceed 16% of the amount by which the decedent’s taxable estate exceeds the Maryland estate tax exemption. As we have noted, that amount is currently $5 million. So, if the estate was appraised at $6 million, the maximum amount subject to the tax would be $1 million ($6 million-$5 million). Then, the actual tax would be 16% of $1 million, that is, $160,000.
Given the potential exemptions and deductions, an estate with a gross value over $5 million will not necessarily owe Maryland estate tax. However, the executor will have to file a Maryland estate tax return within nine months of the decedent’s death unless an extension is requested and granted. If estate taxes are indeed owed to the state, they typically must be paid within nine months of the decedent’s passing even if a filing extension was granted. However, it is possible to be granted a payment schedule wherein payments are made in installments or deferred temporarily.
With proper planning, it is possible to structure one’s assets in such a way that Maryland (and federal) estate taxes can be minimized or eliminated entirely. We invite you to call the Law Offices of Clifford M. Cohen at (202) 895-2799 to schedule a meeting. We can meet in-person at our office or virtually via Zoom and other platforms.