Inheritance Tax Overview
Maryland’s application of inheritance tax is unique. Maryland is only one of two states that have a tax for inheritance separate from estate tax. In fact, most states do not impose an inheritance tax. Only Pennsylvania, Iowa, Nebraska and Kentucky have an inheritance tax. It is important to understand how inheritance and estate taxes work so that people can make an informed decision about their estate plan.
One critical difference to understand is how an estate tax and inheritance tax differ. Estate tax is charged against the entirety of the estate regardless of the identity of the beneficiaries. In contrast, inheritance tax is charged against the particular shares that beneficiaries receive.
In Maryland, the inheritance tax is lodged against the value of property when certain individuals are the beneficiaries. Many beneficiaries are exempt from paying inheritance tax, including a spouse, child, lineal descendant, grandparent, parent, sibling, stepchild or a stepparent. Property going to any of these named individuals is complex exempt from the state inheritance tax. Additionally, a corporation beneficiary may be exempt from estate tax if only these same individuals are shareholders. Additionally, domestic partners that have a primary residence that they own as joint tenants are exempt from the inheritance tax. Property that goes to any other type of beneficiary is subject to the tax.
Inheritance tax applies to property that passes through a will, a deed, a trust, joint ownership, intestacy laws and a payable on death designation. It also applies to gifts that are made in contemplation of death or any other property that was given away within two years of the person’s death. Life insurance paid to the estate is also subject to the tax.
At the time of publication, Maryland’s inheritance tax is ten percent. Maryland’s estate tax is imposed on estates with a gross value in excess of $3 million. The exemption amount increases to $4 million in 2018 and is set to match the federal estate tax exemption, which is currently set at $5.49 million. While the current top estate tax rate for federal estate tax is 40 percent, the highest state estate tax rate is 16 percent.
When payment is due for inheritance tax, the Register of Wills of the county where the decedent resided or owned property when he or she died collects the amount owed. The Register of Wills uses the estate’s inventory to determine the amount of inheritance tax. It then notifies the personal representative of the owed amount and is responsible for paying this tax out of the inheritance that a beneficiary is due. If the personal representative does not do this, the individual beneficiary is responsible for paying the tax.
If you have questions about an IRA inheritance trust or want to establish one, the estate planning attorneys at Altman and Associates can help. We have more than 40 years of experience and are dedicated to providing personal service and comprehensive solutions to every client. Call us at (301) 468-3220 or contact us online to schedule a confidential appointment to come by our conveniently-located Columbia office.Read More