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Changes in Estate Tax Laws and What This Means to You

January 15, 2015

By: Brian A. Balenson and L. Stephen Hess

Former Governor O’Malley signed into law a significant change to the Maryland Estate Tax that went into effect on January 1, 2015.  Prior to the new law, Marylanders had a $1,000,000 applicable exclusion from estate tax.

Beginning this year, the applicable exclusion amount changes as follows:

Date of Death On or After: Applicable Exclusion Amount:
January 1, 2015 and before January 1, 2016 $1,500,000
January 1, 2016 and before January 1, 2017 $2,000,000
January 1, 2017 and before January 1, 2018 $3,000,000
January 1, 2018 and before January 1, 2019 $4,000,000

 

For the estate of a decedent who dies on or after January 1, 2019, the applicable exclusion amount will equal the federal applicable exclusion amount, which is indexed to inflation.  Currently, that amount is $5,430,000, but with an inflation-indexed applicable exclusion applied, the amount in 2019 is estimated to be $5,900,000.

What this means to you:  if your estate is under the Maryland exclusion amount, your estate will not be subject to either federal estate tax or Maryland estate tax.  Until 2019 (when the federal exclusion amount and the Maryland exclusion amount are the same) if your estate exceeds the Maryland exclusion but not the federal exclusion amount, your estate may be subject to Maryland estate tax.  If in 2019 and beyond your estate exceeds the federal exclusion amount and the Maryland exclusion amount, your estate may be subject to both federal estate tax and Maryland estate tax on the amount that exceeds the exclusions.  Note, spouses get to double the exclusion amount and upon the death of the first spouse, the unused federal exclusion of the first spouse to die can be added to the federal exclusion amount of the surviving spouse.  In 2019 and thereafter, the unused Maryland exemption of the first spouse to die can be added to the Maryland exclusion amount of the surviving spouse.  This means with careful planning, after 2019 a married couple may exclude approximately $11,800,000.00 of assets from their taxable estates, both federal and Maryland.

The Maryland estate tax remains at sixteen percent (16%).  Maryland does not have a gift tax; therefore, lifetime gifts which need to be counted against the federal exclusion amount do not count against the Maryland exclusion amount.  Thus, lifetime gifting is an effective means of reducing the size of your Maryland taxable estate.

The above changes might necessitate a change in your estate plan; many married couples incorporated a very complex strategy using credit shelter and marital trusts which might not be needed to minimize both the federal and Maryland taxes.  Your personal circumstances and assets may also differ from when your estate plan was put into place, so now is a good time to review your estate planning strategies.

For more information on the tax law changes or estate planning generally, contact Brian Balenson at bbalenson@tydingslaw.com or Steve Hess at shess@tydingslaw.com.

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