When somebody dies in the State of Maryland, there are three tax systems that are reviewed. We review the inheritance tax, the income tax, and estate tax. The Maryland inheritance tax is collected by the county and it is a taxable right to receive an inheritance from an estate.
How the tax is paid will be partly dependent on the terms or provisions in the decedent’s last will and testament. Generally, the taxes that are seen are 11% tax that is on the amount of the distribution made to the individuals. Some beneficiaries are exempt from inheritance tax, such as the surviving spouse, children, grandchildren, parents, brothers, sisters, and charities. Other beneficiaries, such as nieces, nephews, and friends, are not subject to inheritance tax. Talk to an estate planning lawyer for more information.
In addition to the Maryland inheritance tax, there is income tax. The income tax rate will depend on the bracket that the estate falls into and so that rate is a case-by-case determinative.
Generally, income tax continues after death and the filed income tax return is paid through the decedent’s date of death. Fiduciary income tax returns are filed both with Maryland and also the federal returns, if necessary.
The final tax is an estate tax and the estate tax in Maryland is the tax on the right to leave your assets. Maryland has an estate tax, but it differs from the federal estate tax. This means that an estate can be subject to both the federal and the Maryland estate tax.
With decedents dying in 2017, the Maryland estate tax exemption is $3 million. The estates that are over $3 million will be required to file an estate tax return. While a return may be due, taxes may not be due because of the available deductions. If taxes are due, the Maryland estate tax rate is a sliding scale up to 16%. It should be noted that the Maryland estate tax is slated to catch up with the federal estate tax by the year 2019.
The Federal Estate Tax exemption is $5,490,000 for decedent’s dying in 2017. It should be noted that a major tax reform has been suggested which could be a dramatic change to the current estate tax system. The change to the federal system could result in a change to the Maryland estate tax system.
Important Factors to Consider
For many individuals, an attorney can minimize the exposure to tax liabilities, but that planning often needs to be done prior to death. Sometimes that planning requires immediate action after death or post-mortem planning. Because the current estate taxes can be complicated, it may be helpful to speak with an estate planning attorney who can guide a person through the tax process.
Mitigating Impact of Maryland Estate Taxes
There are a lot of opportunities available to mitigate estate taxes. Many of those opportunities, however, occur prior to a decedent’s death. This planning process prior to death has the greatest impact on the possibility of mitigating exposure to estate taxes. Call an attorney today to see what you can do.