For Maryland residents, an estate may be subject to both federal and state estate taxes. In addition to estate taxes, Maryland also has an inheritance tax. In some circumstances, like if an inheritor is a charity, the Maryland inheritance tax might not apply. Understanding the interplay of the three taxing systems and knowing when your estate may be subject to those taxes is important when you are creating your estate plan.
Consulting with a Maryland estate planning lawyer will make the process clearer and easier for you. When you speak to an attorney, they will sit down with you and go through your particular case, shedding insight and providing advice on how you should proceed with your estate plan. To learn more about the entire estate planning process, do not hesitate to call a skilled attorney today.
Taxes to Consider When a Maryland Resident Passes
When a Maryland resident passes away, there are typically three tax systems an estate planning lawyer will review. The first is estate taxes or death taxes, which is generally a tax on the right to transfer your property. Maryland currently has a state estate tax and there is also a federal estate tax. The Maryland estate tax exemption is slated to rise to meet the federal estate tax exemption by 2019. The second taxing system is inheritance tax. In Maryland, the inheritance tax is collected by the county in which an individual resides at the time of their death. Inheritance tax is a tax on the right to inherit property.
Generally, in the state of Maryland, the tax is 10 to 11 percent of the distribution amount. However, children, grandchildren, spouses, parents, siblings, and charities are exempt from that tax. Additionally, it is also important to note that friends and nieces and nephews are not exempt from inheritance tax. The third type of tax is income taxes. Any income received prior to death is filed on the final income tax return. Income taxes are assessed on the income your estate or trust earns after your death, and are reported on fiduciary income tax returns.
Tax Implications of Passing Intestate
When someone passes away, there are generally three tax systems to review: the estate tax, the inheritance tax, and income tax. Those three tax systems apply whether or not an individual has a Last Will and Testament. What changes, however, is the individual’s ability to plan around exposure to those tax systems.
For example, if an individual dies with a Last Will and Testament, the individual may have had the opportunity of doing some estate tax planning to minimize the exposure to estate taxes. When someone has passed away, a lot those opportunities are gone. The person’s estate may be exposed to estate taxes, because the opportunity to save them was missing from the fact that there was not any estate planning done in advance of a Last Will and Testament.
Similarly, an individual who has done estate planning may not be aware that any distribution to a niece, nephew, or a friend could result in inheritance taxes. When individuals have not planned their Last Will and Testament, some of their estate would be eroded by the application of those taxes where some of those taxes may have been minimized prior to death.
In the event that there is no Last Will and Testament and a person inherits and is subject to Maryland inheritance tax, the beneficiary may be forced to pay the inheritance tax. For example, if an uncle passes away and leaves a niece all of his assets, rather than the expenses being paid from the estate, the register of wills for the county which the decedent dies would be looking to the beneficiary or the heir to pay those taxes.
Mitigating Impact of Estate and Inheritance Taxes
Through careful planning, there are a number of flexible options that can be used to minimize a client’s exposure to estate taxes, which is why it is imperative that someone who is set to inherit from a deceased individual should contact a Maryland estate planning lawyer right away. Generally, minimizing estate taxes includes a couple of key strategies. These strategies generally include taking full advantage of a client’s estate-tax exemption using marital or charitable deductions, freezing the value of the assets at their current cost basis, and permanently gifting assets away.
An estate plan may use some or all of these strategies to minimize exposure to estate taxes, depending on the nature of the assets and the client’s needs and goals. A Maryland estate planning attorney can help balance the exposure to estate taxes with the overall family needs and goals so that a comprehensive plan can be achieved.