Maryland Estate Taxes

Maryland imposes both an inheritance tax and an estate tax. The inheritance tax is imposed on the value of property passing from a decedent to nonexempt beneficiaries. The following people related to the decedent are exempt from the inheritance tax: decedent's child or other lineal descendant; a spouse; parents; grandparents; or siblings. Property passing from the decedent to any other person is subject to a 10 percent tax, as determined by the Maryland Register of Wills.

The Maryland estate tax is equal to the maximum allowable credit for state death taxes on the federal estate tax return, after subtracting any Maryland inheritance taxes paid. If the amount of inheritance taxes paid equals or exceeds the credit for state death taxes, no Maryland estate taxes are due (although a return is still required).

Maryland has partially "decoupled" its estate tax laws from any reduction to the federal credit for state death taxes occurring on or after January 1, 2001 (which includes reductions slated to occur under the Economic Growth and Tax Relief Reconciliation Act of 2001). Also, for estates of decedents dying after 2003, the requirement to file a Maryland estate tax return is no longer dependent on the federal filing threshold. Instead, Maryland's filing threshold continues to be the $1 million level. Otherwise, Maryland's estate tax laws continue to be intertwined with federal estate tax laws.

Deductions. For nonresident decedents, only administration and other expenses in Maryland are deductible. The following deductions are generally allowed from a resident decedent's estate when calculating Maryland estate tax liability:

• decedent's debts
• funeral expenses (generally up to $5,000)
• commissions of executors and administrators
• attorneys' fees
• reasonable executor's commissions
• federal estate tax
• inheritance taxes paid to other states
• property and income taxes accrued before distribution
• mortgages
• bequest for perpetual upkeep of grave (not to exceed $500)
• family allowance of $5,000 for the use of the surviving spouse
• family allowance of $2,500 for the use of each unmarried child who is not 18 at the time of decedent's death

Returns. As mentioned above, the threshold for filing a Maryland estate tax return (Form MET-1) is now lower than the threshold for filing a federal estate tax return (Form 706). This means that the administrator of the decedent's estate may have to file a Maryland estate tax return even though a federal return is not required. Because of this recent change, the Comptroller of Maryland has promised to provide additional information to assist those filing returns in 2004.

The Maryland estate tax return must be filed within nine months of the decedent's death with the Register of Wills of Baltimore City or the county in which the Maryland estate is being administered, or where the property is located when a nonresident decedent is involved.

Any Maryland estate taxes owed are paid to the Comptroller of Maryland at the same time the return is due to the Register of Wills. The check should be mailed to the Comptroller with remittance Form MET3.

Generation-skipping transfer tax. Maryland has a generation-skipping transfer tax that is equal to the federal credit.