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Maryland Inheritance Taxes: An Update

Near the end of the 2000 legislative session, the Maryland General Assembly passed a bill that significantly expands the class of individuals that are exempt from paying Maryland inheritance tax. Shortly after the bill was approved by the legislature, Governor Paris N. Glendening signed the bill, making it a law that became effective July 1, 2000.

For decedents dying on or after July 1, 2000, the following class of individuals are exempt from paying Maryland inheritance tax: 1) a grandparent of the decedent; 2) a parent of the decedent; 3) a spouse of the decedent; 4) a child or other lineal descendant of the decedent; 5) a spouse of a child or other lineal descendant of the decedent; 6) a stepparent or stepchild of the decedent; 7) a brother or sister of the decedent; and 8) a corporation if all of its stockholders consist of the surviving spouse, parents, stepparents, stepchildren, brothers, sisters, and lineal descendants of the decedent and spouses of the lineal descendants. Collateral heirs (nieces, nephews, cousins, step-grandchildren, friends, etc.) are subject to a 10% inheritance tax. This new law will eventually be codified in the Maryland Annotated Code as § 7-203(b) of the Tax – General Article.

For decedents dying before July 1, 2000, any lineal heir of the decedent, such as a grandparent, parent, spouse, child, grandchild or other lineal descendant, stepparent, stepchild, or a corporation if all of its stockholders consisted of these classes of individuals, was assessed inheritance tax at a rate of 0.9%. The surviving spouse was exempt from paying Maryland inheritance tax on jointly held property, real or leasehold property, and the first $100,000 of any other property that passed from the decedent. Under the old law, a sibling of the decedent would pay Maryland inheritance tax of 8% of the clear value of the property. Gradually, over time, this rate would have dropped to 5% by July 1, 2001. All other recipients of property were assessed Maryland inheritance tax at a rate of 10%.

During the first session of the year 2000 of the Maryland General Assembly, another bill attempted to modify the Maryland inheritance tax (House Bill 13/Senate Bill 160). This bill endeavored to completely repeal the Maryland inheritance tax for decedents dying on or after July 1, 2000. Since the revenue generated from the inheritance tax currently funds the offices of the register of wills in each county, this bill also proposed that, in the future, the county register of wills would receive funding from the state budget. Although the Maryland House of Delegates unanimously approved this bill, the Maryland State Senate rejected this plan by a vote of 36-11, voting unanimously in favor of the plan to eliminate the inheritance tax only for direct descendants.

Although several ideas have been circulated concerning ways to recoup the lost revenue occasioned by the passage of this new law, to date, no new funding techniques have been employed. Next year, the Maryland General Assembly may decide to include the funding of the register of wills in the state budget, or, in the alternative, the legislature may approve an increase in the probate fees or the Maryland estate tax.

After January 1, 2001, this change means that individual’s who die in Maryland owning less than $1,000,000 in assets will not pay any estate or inheritance taxes.

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