Maryland’s Unique Imposition of Both Inheritance and Estate Taxes
Maryland is a unique State in a variety of ways, but beginning in 2018 it gains another unique distinction when it becomes the only state to impose both an estate tax and an inheritance tax. See Joel Michael, Estate and Inheritance Taxation: An Overview of Taxes in the States, Updated Dec. 2016. The Minnesota legislative report explains that only two states, Maryland and New Jersey, impose both an estate tax and an inheritance tax, but that New Jersey’s estate tax has been repealed for those dying in 2018. Changes to New Jersey’s inheritance and estate tax regime are discussed here.
While the Maryland estate tax applies only to wealthier individuals, with estates valued at more than $3,000,000 in 2017, the Maryland inheritance tax can snag unsuspecting residents. It is common for estate planning clients to give substantial sums to friends, cousins, nieces, and nephews. Each of these individuals is generally subject to the 10% inheritance tax when receiving $1,000 or more. See Register of Wills Administration of Estates Pamphlet; Tax General 7-203(g).
The inheritance tax can be assessed on assets gifted prior to death. Assets transferred outside of the probate process, for example by beneficiary designation, can still be subject to the Maryland Inheritance Tax. Creating even a basic estate plan can result in substantial inheritance tax savings under the right circumstances and can provide peace of mind that 10% of your hard-earned assets will not be handed over to the Register of Wills.