Death and Taxes to Persist, But Less Expensively

Next year the cost of dying in Maryland will drop, and keep dropping, for people with Maryland estates of more than $1 million.

After years of resisting the trend among states, the Maryland legislature acted in this most recent session to reduce local estate taxes gradually over the next five years until the state exemption from tax matches the much larger exemption available from federal estate tax.

Since 2002, Maryland has imposed its own estate tax, separate from federal estate tax. Indeed, for the remainder of this year, Maryland will continue to tax Maryland estates with assets here valued at more than $1 million at the top rate of 16%. This is in addition to federal estate tax, though the federal exemption is much higher – currently at $5,340,000 per person, indexed to increase annually for inflation. The top federal tax on the excess of the exemption is 40%.

The new law, which took effect July 1, increases the exemption from Maryland estate tax, thereby reducing exposure to it, as follows: $1.5 million for those dying in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. From and after 2019, the Maryland exemption will equal the federal exemption, which is estimated to reach $5.9 million by then. The Maryland maximum estate tax rate will remain at 16%.

One rather onerous feature of the Maryland estate tax will continue under the new law, however, until the Maryland estate tax is “recoupled” with the federal estate tax in 2019. Specifically, the Maryland estate exemption at its current level, and even as it increases through 2018, is particular to each person, which for married couples means any unused portion of an exemption from a first estate cannot be passed along to the estate of the surviving spouse. Thus, under the first four years of the new law, if one spouse leaves his or her estate to the other, there is no estate tax on the transfer between spouses, but the surviving spouse will die with the combined assets of both spouses in his or her estate, but only one exemption — $1 million this year — to apply to it.

In estate-planning parlance, the current Maryland estate tax lacks the “portability” between spouses. Whereas, the federal estate tax exemption, being portable, permits the estate of the surviving spouse to apply the unused portion of the predeceased spouse’s exemption — $5,340,000 this year — as well, thereby effectively shielding $10,680,000 of the couple’s assets from federal estate tax.

Until the eventual recoupling of the Maryland estate tax exemption with the federal, it still makes sense in estate planning for married couples to use certain techniques to enable each spouse to take advantage of his and her individual exemption. A typical approach is to provide for the estate of the first spouse to fund a trust for the benefit of the surviving spouse, up to the amount of the available Maryland exemption, rather than leaving the entire estate to the surviving spouse outright. Upon the death of the surviving spouse, that trust is not part of the surviving spouse’s estate but can pass under various terms and conditions to children or others.

In this manner, a couple can arrange to take advantage of some or all of the Maryland exemption available to the first spouse to die; however, there is some trade-off involved in the surviving spouse’s limited access to trust assets. That being the case, it is still advisable to plan one’s estate with the Maryland exemptions – increasing though they are – firmly in mind.

For more information please contact Jay Merwin at 410-583-2400 or


210 W. Pennsylvania Avenue, Suite 400
Towson, Maryland 21204