If you live in Maryland, then you're lucky enough to live in one of the two states that collects both a separate state inheritance tax and estate tax (the other is New Jersey). But while Maryland is one of only seven states that collects an inheritance tax, Maryland is one of the many states that "decoupled" from federal estate law back in 2005. Maryland amended its estate tax laws again in 2006, so the following rules currently apply:
- A Maryland estate tax return, Form MET-1, must be filed if the decedent's gross estate as determined for federal estate tax purposes, plus adjusted taxable gifts, is $1,000,000 or greater, and the decedent was a resident of Maryland or a nonresident who owned real or tangible perrsonal property located in Maryland.
- Form MET-1 must be filed even if no Maryland estate tax will be due as a result of applicable deductions and exemptions.
- Even if no federal estate tax return is required, a "pro forma" federal estate tax return must be prepared in order to be able to complete Form MET-1.
- Form MET-1 must be filed with the applicable Register of Wills office and any tax due must be paid to the Comptroller of Maryland within nine months of the decedent's date of death. UPDATE - Effective July 1, 2009, the initial Form MET-1 may be filed directly with the Comptroller's office, and any amended Form MET-1 must be filed directly with the Comptroller's office.
- An extension of time to file Form MET-1 may be requested, however, even if an extension is granted it won't delay the time for payment of any tax due.
- As part of the 2006 changes, a decedent's estate is now authorized to make an election on Form MET-1 to treat property as marital deduction qualified terminable interest property ("QTIP") for purposes of calculating the Maryland estate tax. What this means is that if the estate is passing to a surviving spouse through typical AB Trust planning, then the payment of both Maryland and federal estate taxes can be deferred until after the death of the surviving spouse.
- The tax rate is a progressive rate that is capped at 16%.
This information is courtesy of the Comptroller of Maryland.
The bottom line - if you're a Maryland resident and your estate is passing to someone other than your spouse and the value is $1,000,000 or more, or if you're a nonresident who owns real estate and/or tangible personal property located in Maryland and your estate is valued at $1,000,000 or more, then your estate may owe a Maryland estate tax. Up next, Massachusetts estate taxes.
- Understanding Death, Estate and Inheritance Taxes
- State Estate Tax Chart
- Understanding Maryland Inheritance Taxes
- State Inheritance Tax Chart
- Understanding the State Estate Tax Exemption Trap
- When is a Federal Estate Tax Return Required to Be Filed?
- How to Calculate Your Federal Estate Tax Liability
- How to Reduce or Even Eliminate Your Estate Tax Bill
Are the Federal and State Taxes additive?
For example an estate is valued at $4,000,000.
Federal first $3,500,000 exempt leaving $500,000 taxed at 45% = $225,000
Maryland State first $1,000,000 exempt leaving $3,000,000 taxed at 16% = $480,000
Total Tax paid $705,000?
Hi Tom, the calculation is slightly different because you can deduct the amount of estate taxes paid to the State of Maryland as an expense on the federal estate tax return.
Sincerely,
Julie Ann Garber, Esq.
Your Guide to Wills & Estate Planning
email: wills.guide@about.com
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