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Impact of Inheritance Tax on Maryland Probate Cases

In Maryland, an inheritance tax is unique from an estate tax. It influences inheritances from a decedent’s last will and testament by taxing the value of assets an inheritor receives. To learn more about how inheritance and other taxes affect probate proceedings in MD, call and consult with a Maryland probate lawyer right away.

What Is an Inheritance Tax?

An inheritance tax is the tax on the right to receive distribution from an estate. The inheritance tax in the state of Maryland is approximately 10%, depending on the type of distribution being received and the terms of the decedent’s last will and testament.

The terms of the decedent’s last will and testament determines who pays the inheritance tax. If there is no last will and testament, typically, it is paid by the person that inherits the assets or is the heir of the estate. The tax is assessed on only the value of the assets distributed.

The difference between estate tax and inheritance tax is that estate tax is based on the overall gross taxable estate whereas inheritance tax is based on the amount received by each individual. Any amount paid in inheritance tax is often a dollar-for-dollar deduction for the Maryland estate tax.

Unlike estate taxes, which are collected by either the Comptroller of Maryland or by the United States Treasury, the inheritance tax is collected by the Register of Wills office for the county in which the probate proceeding is administered. There are some exemptions to inheritance tax which typically include charities, children, spouses, grandchildren, parents, brothers and sisters. The most common relations that are not exempt are nieces, nephews and friends.

Probate v. Non-Probate Cases

Typically, the inheritance tax on probate property in Maryland is due at the time of distribution to an individual. Whenever the distribution has been made for an individual, the inheritance tax will be assessed and collected by the Register of Wills.

Inheritance tax on non-probate property is assessed at the time of filing the Information Report. The Register of Wills will assess and invoice the individual or estate for any inheritance taxes due.

An information report is the document that the Maryland Register of Wills uses to determine whether there is any inheritance tax due for assets that have passed outside of probate. For example, assets that are outside of probate include assets that have a joint owner, assets that are beneficiary-driven, assets that may have passed less than three years from the date of the decedent’s death and assets that are physically not located in the state of Maryland.

The form is use to determine if any of those assets that may not have been listed in the ordinary course of a Maryland probate proceeding are subject to Maryland inheritance tax.

Property Distribution With a Will in Maryland

If a decedent had a will, then the property is typically distributed pursuant to the terms of the last will and testament. This distribution is determined by the laws of intestacy. Spouses and children are generally exempt from inheritance tax. However, an estate in Maryland may still be subject to income tax and estate taxes.