There was big news in the state legislature this past session affecting many more Marylanders than some would imagine. The legislature voted to, over a five year period, increase the amount of a person’s estate that is exempt from Maryland estate taxation from its current level of $1 million dollars to the federal level of about $5.9 million. For quite a long time, Maryland “coupled” its estate tax exemption levels to the federal level, so that they remained the same. However, several years ago, when the federal exemption level began to increase from $1 million to $5 million, Maryland chose to stay where it was. This left a swath of people that were no longer subject to federal estate taxation, but who still had to deal with Maryland estate taxation.
Maryland’s estate tax rate (the highest rate is 16%) is not the whopper that the federal rate is (the highest rate is now 40%), but there are more people that are subject to the tax than one might think. If you told many people that they were a “millionaire,” they would laugh. But if you own a home that you have paid off, if you have a 401(k) and/or an IRA, if you have a life insurance policy, there is a decent chance that when you pool all of that together, more passes upon your death than you might think. Just because you do not have a million dollars sitting in a bank account for discretionary use does not mean you do not have a million dollars of assets.
For a number of reasons, the legislature has elected to give Marylanders a break. Starting in 2015, the individual state estate tax exemption will increase to $1.5 million, then $2 million, $3 million, $4 million, up to the federal level in 2019, which is projected to be at about $5.9 million. So while Marylanders are not out of the woods yet, as the first increase does not kick in until next year and does not reach the federal level for five years, the number of Marylanders that will be affected by the tax should dwindle considerably. In the meantime, and for those that are affected by the tax in any event, an estate planning attorney from our Annapolis law firm can provide you with advice on the many ways that your heirs can minimize the “sticker shock” upon your death.