Overview of Changes to Maryland Estate Tax Laws

New Maryland Estate Tax Laws Take Effect on January 1, 2015

Bill signing ceremony for H.B. 739. Jay Baker/Executive Office of the Governor

NOTE: State laws change frequently and the following information may not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.

On May 15, 2014, Maryland Governor Martin O'Malley signed H.B. 739, Maryland Estate Tax - Unified Credit, into law.

  This new law, which repeals and then re-enacts Maryland's state estate tax, makes several significant changes that will go into effect beginning on January 1, 2015.

Increases in Maryland's Estate Tax Exemption Beginning in 2015

First and foremost, the Maryland estate tax exemption will gradually increase on an annual basis from the current $1,000,000 exemption until it matches the federal estate tax exemption in 2019 as follows:

  • Deaths between January 1, 2015 and December 31, 2015: $1,500,000 exemption
  • Deaths between January 1, 2016 and December 31, 2016: $2,000,000 exemption
  • Deaths between January 1, 2017 and December 31, 2017: $3,000,000 exemption
  • Deaths between January 1, 2018 and December 31, 2018: $4,000,000 exemption
  • Deaths on or after January 1, 2019: Maryland exemption will match federal exemption, estimated to be $5,900,000 in 2019 (more on that below)

Overview of Federal Estate Tax Laws

The federal estate tax exemption increased from $3,500,000 in 2009 to $5,000,000 in 2010; 2010 was also the year that estates could opt out of the federal estate tax rules and into the modified carryover basis rules.

The federal estate tax exemption remained at $5,000,000 in 2011 and then beginning in 2012 the $5,000,000 federal estate tax exemption has been indexed for inflation on an annual basis as follows:

  • 2012 exemption:  $5,120,000
  • 2013 exemption:  $5,250,000
  • 2014 exemption:  $5,340,000

As mentioned above, in 2019, which is when the Maryland estate tax exemption will equal the federal estate tax exemption, the federal exemption as indexed for inflation is projected to be $5,900,000.

Portability of the Maryland Estate Tax Exemption

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act ("TRUIRJCA" for short) was signed into law.  As part of TRUIRJCA, "portability" of the federal estate tax exemption between married couples was introduced for the first time and applied to deaths that occurred in 2011 and 2012.  Then, in January 2013, the American Taxpayer Relief Act ("ATRA" for short) was passed which made portability of the federal estate tax exemption between married couples permanent for 2013 and future years. But what does "portability" of the estate tax exemption mean?

In simple terms, portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use all of the deceased spouse's federal exemption from estate taxes, then the amount of the exemption that was not used for the deceased spouse's estate may be transferred to the surviving spouse's exemption so that he or she can use the deceased spouse's unused exemption plus his or her own exemption when the surviving spouse later dies.

With regard to state estate taxes, however, currently only Hawaii offers portability at the state level, but Maryland will begin offering portability of its state estate tax exemption beginning in 2019.

Additional Information About Maryland Death Taxes

There are a couple of other things that should be noted about Maryland's death tax laws:

  1. The maximum Maryland estate tax rate will remain at 16%.
  2. A married decedent's estate will still be able to make a Maryland-only election to treat a trust of which the surviving spouse is the sole beneficiary as "qualified terminable interest property" ("QTIP Trust" for short) for purposes of calculating the Maryland estate tax in years where there is still a gap between the Maryland estate tax exemption and the federal exemption.  Thus, married Maryland residents who die between 2014 and 2018 will be able to defer payment of both Maryland and federal death taxes until after the death of the surviving spouse using ABC Trust planning.
  3. Maryland is one of two states (New Jersey is the other) which collects both a state estate tax and a state inheritance tax.  The new law did not make any changes to Maryland's inheritance tax.  Refer to Overview of Maryland Inheritance Tax Laws for more information about this Maryland death tax.

    For information about the Maryland estate tax laws that are in effect through December 31, 2014, refer to Overview of Maryland Tax Laws for 2014 and Prior Years.