2014 legislation makes for big changes to Maryland estate planning

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2014 legislation makes for big changes to Maryland estate planning

  • June 9, 2014

While other states have eliminated their estate taxes, Maryland has kept its estate tax for estates in excess of $1,000,000.  With the federal estate tax exemption at $5,430,000 for decedent’s dying in 2015, this has created a difficult dynamic for estate planning generating a need for creative and complex formulas. 

The effects of this have been notable, and are finally getting the attention deserved with increased media attention to growing statistics of individuals fleeing the state out of concern for the financial ramifications of dying as a Maryland resident and creating a difficulty in attracting new businesses to locate in Maryland.

Finally, the legislature took notice.  On March 15, 2014, Governor O’Malley signed into law House Bill 739 and Senate Bill 602 which will ultimately reunite the state and federal exemptions in 2019.

The estate tax applicable to the excess over the exemption is approximately 16%. Incrementally, last year’s $1 million exemption was increased effective 01/01/2015 to $1.5 million and will continue to increase during ensuing calendar years as follows:

2016 – $2,000,000
2017 – $3,000,000
2018 – $4,000,000

After January 1, 2019, the state exemption will equal the federal exemption.  It is anticipated, based upon inflation indexed to the applicable exclusion, by 2019, that amount may be as high as $5,900,000.

Also, in 2019, portability will apply to the Maryland estate tax just as it now does to the federal estate tax.   If one spouse dies without utilizing his or her complete exemption, it is possible to add the unused portion of the exclusion to the surviving spouse upon the making a proper election within the estate administration of the first to die.

As always, the devil is in the details, and issues with the new legislation can be expected. However, as the exemption grows fewer Marylanders should be affected by the decoupled tax as presently exists.

If you have questions or further concerns, please feel free to contact a member of the Trust and Estates Planning Group at Wright, Constable & Skeen, LLP.