On April 5, 2018, legislation passed in Maryland that will set the amount exempt from Maryland estate tax at $5 million for decedents who die on or after January 1, 2019. Previously, the exemption would equal the federal estate tax exemption for all such decedents. For decedents dying in 2018, Maryland’s exemption is $4 million. Unlike the federal estate tax exemption, the new Maryland exemption will not be indexed for inflation and, thus, will not increase over time. The new law also expressly provides for “portability” of unused Maryland estate tax exclusion. Accordingly, a surviving spouse may elect to use, under certain circumstances, any portion of his or her deceased spouse’s unused Maryland estate tax exemption.
The maximum Maryland estate tax rate of 16 percent is unchanged by the new law. The Maryland inheritance tax is also unaltered, which depends on how closely related the decedent was to the people who inherit from him or her, not on the size of the estate. The inheritance tax does not apply to surviving spouses and children of a decedent, for example.
This change in the Maryland estate tax exemption signals a new trend following the enactment of the 2017 Tax Act in which states will be actively reviewing and, in many instances, changing their tax laws in response to the sweeping changes brought by the new federal law.
In the District of Columbia, where the estate tax exemption currently matches the federal exemption amount of $11.18 million, a bill has been introduced that would “decouple” from the federal exemption and set the exemption amount at $2,185,800 for decedents dying on or after January 1, 2019. The exemption amount would be adjusted annually for inflation. This bill was introduced on February 6 and is currently in committee. The District of Columbia does not currently impose an inheritance tax.
Pennsylvania does not impose an estate tax but does impose an inheritance tax whereby, similar to Maryland, the tax rate varies depending on the relationship between the person receiving an asset and the decedent.
Florida and Virginia currently do not impose an estate tax or inheritance tax.
Residents of Maryland and District of Columbia should review their current estate plans and meet with advisors to determine whether any changes would be advisable in light of new or pending state legislation as well as the increased federal estate tax exemption. Residents of Virginia, Pennsylvania and Florida should also review their current estate plans in light of the increased federal estate tax exemption.