What is Maryland Inheritance Tax? [Quick Guide] [2024 New Guide]

Is there only a state estate tax in Maryland, or is there also an inheritance tax? Yes. Maryland is unique in that it imposes both inheritance tax and a state estate tax, making it the only state in the US to do so.

Inheritance tax in Maryland is levied on all inherited property unless an exemption applies, but the state’s estate tax is only applied on estates valued more than several million dollars. (The third alternative, federal estate tax, affects only the largest estates in the country, so you probably don’t have to worry about it.)

But before you get too down, remember that many inheritors in Maryland won’t have to pay any inheritance tax at all thanks to the state’s generous exemptions. The good news is that in Maryland, gifts to charities, close family, and even certain not-so-near relatives are excluded from tax. The tax rate for all other inheritors is 10%.

How does Maryland impose an inheritance tax?

The value of a decedent’s estate is subject to taxation in Maryland if it is distributed to specific heirs. All transfers of property, whether by will, the rules of intestate succession (when someone dies without a will), trust, deed, joint ownership, or otherwise, are subject to the tax.

The Register of Wills in the county where the decedent resided or had property in Maryland is responsible for collecting the Maryland inheritance tax.

Calculating Maryland’s inheritance Tax

The state of Maryland is one of just a handful that levies a tax on inheritances. The tax is based on the benefit of inheriting something from a deceased person. Gifts in Maryland are subject to a 10% inheritance tax. At this time, it is only required of collateral heirs such as a niece, nephew, or acquaintance. It is no longer necessary to pay taxes on the inheritance of certain relatives such as parents, grandparents, children, stepchildren, spouses of children, brothers and sisters.

It’s not clear at first glance who must pay the Maryland inheritance tax and who can skip it. Historically, the only people who were not required to pay the tax were direct descendants and the surviving spouse. The list of tax-exempt relatives has become larger as time has passed thanks to legislative action. The list of exempt persons was expanded to include the stepchildren and siblings of the deceased.

Unless otherwise specified in the governing instrument, the receiver is responsible for paying the inheritance tax since it is considered a tax on the tax of obtaining the property. The net value of the gift and inheritance tax is $9,000, therefore if the governing document leaves $10,000 to a niece and the document pays the inheritance tax in the same manner as stipulated by law, the niece will really get $9,000. Altering this outcome is possible.

The inheritance tax may be paid by the residuary estate if the will or trust specifies that this is to be the case. An extra $1,1111 would be owed by the estate or trust as inheritance tax in this scenario, with the entire $10,000 going to the niece. As the estate or trust payment of tax is treated as a gift to the receiver, further inheritance tax is owed on the additional gift, the effective tax rate rises from 10% to 11.1111%.

Maryland Provisions for Avoiding the Transfer Tax on Inherited Property

The recipient rather than the value or quantity of an inheritance is subject to taxation under inheritance law. Although gifts to immediate family members and charitable organizations are not subject to inheritance tax, the remaining 90% of beneficiaries may be required to pay a 10% inheritance tax.

If you are a beneficiary in Maryland and do not fit into one of the following categories, you may not have to pay inheritance tax. The following are the types of inheritances that are free from inheritance tax:

Spouse
Any direct offspring, whether biological or adopted, is considered a relative.
Guardian, Adoptive Parent, or Foster Parent
Sibling
Grandparent
Parent, stepparent, grandparent, or other direct ancestor of the spouse
Widow(er) or widow(er) of a deceased child or direct ancestor who has not remarried
The operation of a (if all owners are legally exempt)
Charity recognized under IRS Code Section 501(c)(3) in the state of Maryland
Organizations that provide a specific purpose not covered elsewhere

Inheritance Tax and Estate Tax

The state of Maryland levies an “inheritance tax” in addition to its estate tax. The estate tax is not combined with this inheritance tax. As was previously indicated, Maryland is the only state in the Union that still levies both of these forms of death taxation. Keep in mind that there are several criteria that must be met before the Maryland inheritance tax is imposed.

Many beneficiaries will not even be required to file an inheritance tax return. A person’s estate tax liability will be reduced by the amount paid in inheritance tax in the event of an inheritance tax trigger.

It follows that when both taxes are levied, the same amount is paid in total. Thus, all the inheritance tax does is transfer the tax burden from one set of individuals to another. The same sum is tallied, nevertheless.

Maryland’s Estate Tax Return Filing Deadlines

A natural inquiry is when a Maryland estate tax return is due. To put it simply, when a deceased person’s gross estate is worth more than $5 million. But what exactly is included in someone’s “gross estate?” There doesn’t appear to be a more important follow-up inquiry in this case than this one. To answer your question, a person’s gross estate consists of virtually all of their possessions.

Furthermore, the decedent’s taxable gifts made in the calendar year before their death will be included in the gross estate. Real estate, financial accounts, investment accounts, retirement accounts, personal property (cars, yachts, etc.), life insurance payouts, company interests, and financial instruments will all be considered property (i.e. stocks, bonds, etc.).

In the case of jointly held property, only the deceased person’s share is included in the calculation of the gross estate. The term “gross estate” is used to refer to the whole value of an individual’s assets, including those held in a living trust that avoid probate.

Importantly, non-residents who possess real or personal property in Maryland are required to file a Maryland estate tax return. If the value of the estate is more than $5 million when the person dies, this will take effect. But only the value of the Maryland-based assets will be used to calculate the estate tax owed.

Rate of Estate Tax in Maryland

The estate tax rate in Maryland is currently at 16%. If your estate is worth more than $5 million, you’ll pay this rate. So, if your estate is worth $5. 5 million, just $500,000 will be liable to the 16% tax. Additionally, any inheritance tax paid will reduce the total estate tax owing. Therefore, if the estate pays $50,000 in inheritance tax, it will owe $50,000 less in estate tax.

Conclusion

In conclusion, Maryland inheritance tax is a tax that is imposed on individuals who receive certain types of inherited property. The amount of tax owed depends on the type of property, the value of the property, and the relationship of the recipient to the decedent.
Maryland inheritance tax is an important source of revenue for the state, but it can be a source of stress and confusion for those who are subject to it. Understanding the rules and regulations of Maryland inheritance tax is essential for those who may be liable for the tax.

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