Only a small percentage of Americans die with an estate worth $11.7 million or more ($23.4 million or more for a married couple in 2021). But for estates that do, the federal tax bill is pretty steep. On a positive note, there’s no federal inheritance tax.
Just because your estate isn’t hit with the federal estate tax, however, doesn’t necessarily mean you’re completely off the hook. Your estate might be subject to a state estate tax. Twelve states and the District of Columbia impose their own estate tax, and the state exemption amounts are often much lower than the federal estate tax exemption. For instance, the exemption amount in Maryland is $5 million in 2021. Six states levy an inheritance tax, which is paid directly by your heirs. (Maryland has both an estate tax and an inheritance tax!) So, tax planning is especially important since your children and grandchildren might end up with less in their pockets when you die than what you’re expecting.
Estate Taxes and Inheritance Taxes in Maryland
Estate taxes are imposed when the property you own is transferred to your heirs after your death. Inheritance taxes are the taxes imposed on the person receiving that property, also known as a beneficiary. As mentioned, Maryland is one of only six states in the United State that impose an inheritance tax.
Inheritance Tax in Maryland
Maryland imposes an inheritance tax when certain beneficiaries receive the assets of an estate after the decedent has passed away. The state of Maryland imposes inheritance taxes on all property that passes under a will, trust, deed, joint ownership, or the intestate laws of succession.
Unlike an estate tax, an inheritance tax is not dependent upon how large the estate is. Rather, it is based on who receives the assets and property of your estate. The Maryland inheritance tax is collected by the Register of Wills in the Maryland county where the decedent lived and/or the property was owned.
Inheritance Tax Rates
When applicable, Maryland’s inheritance tax is 10% of the “clear value” of the property that was inherited. Clear value is defined as the market value minus certain expenses. This inheritance tax must be paid before the distribution of the property.
Certain exemptions apply, such as if an inheritor needs to sell a small business in order to afford the inheritance tax. In such cases, the inheritor would have up to five years to make the installment payments. Such cases are challenging, and consulting with an experienced accountant such as Goldin Group can help you know your rights and responsibilities regarding these complex inheritance tax laws.
Inheritance Tax Exemptions
Inheritance tax is different than estate, as it is based upon who is in receipt of the property, rather than on the total amount or value of the property. Closer relatives and charities are exempt from the inheritance tax, and other inheritors may pay an inheritance tax rate of 10%.
If you are an inheritor and fall into one of the following categories, you may be exempt from paying inheritance tax in Maryland. The inheritance tax exemption categories are as follows:
- Child, stepchild, former stepchild, grandchild, or any other lineal descendant
- Parent, stepparent, or former stepparent
- Spouse of a child, stepchild, grandchild, or any other lineal descendant
- Surviving spouse of a deceased child or lineal descendant, if the surviving spouse has not remarried
- A business (if all owners are legally exempt)
- Maryland section 501(c)(3) exempt nonprofit organization
- Other select non-profits
Reach Out to Us Today for Help
Estate and inheritance planning are both challenging to legally navigate, especially in Maryland. You deserve to maximize the amount of your assets you can pass on after your death. If your loved one has passed away, an experienced certified public accounting firm, such as Goldin Group, can help you understand your rights, and the complex legal estate and inheritance tax laws. We can help you not only determine the best way to plan for the distribution of your estate after your death but also how to understand the complex estate and inheritance taxes in Maryland.
Trust the Professionals at Goldin Group
At Goldin Group LLC, we can help individuals, small businesses and non-profits with their accounting needs. We understand that keeping up with accounting and taxes is time-consuming and can even be overwhelming. We work with individuals, nonprofits and businesses, offering a one-stop-shop for financial services. If you are an individual who needs help with estate taxes, a small business, or a nonprofit looking to outsource your accounting or if you need help managing any aspect of your finances, we would love to hear from you! Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.