Maryland has its own estate tax, separate from the federal estate tax. Under current law, for deaths in 2017 an estate with a gross value of more than $3 million may owe the Maryland estate tax. This exemption amount will grow to $4 million in 2018. Then in 2019, it will match the federal estate tax exemption. In 2017, federal estate tax returns are required only for estates of more than $5.49 million. However, the Maryland top state estate tax rate is 16%, less than half the top federal estate tax rate of 40%.
Maryland also imposes an inheritance tax. The inheritance tax rate doesn’t depend on how large the estate is; instead, it’s based how closely related you are to the people who inherit from you. The closer the relative, the lower the tax rate.
For deaths in 2017, if you are a Maryland resident, or own valuable property in Maryland, and leave assets with a gross value of more than $3 million, your executor will have to file a state estate tax return. (That doesn’t mean the estate will actually owe tax, as discussed below.)
Your gross estate, for Maryland tax purposes, will include your interest in:
For estate tax purposes, it doesn’t matter whether or not these assets go through probate. So even if you name payable-on-death beneficiaries for your bank accounts, and hold your real estate in a living trust, those assets will be included in your gross estate.
Property left to a surviving spouse is exempt from state estate tax, no matter what the amount. And to determine the amount of your taxable estate, you can deduct many expenses from the gross estate. For deaths in 2017, if the value of the taxable estate is below $3 million, the estate won’t owe any Maryland estate tax.
In 2014, Maryland passed legislation increasing the exemption amount, cutting estate tax for the state's wealthy families. Under the new law, the exempt amount will increase each year until 2019, when it will match the exemption from the federal estate tax. Here are the scheduled increases:
The Maryland Comptroller provides state tax forms and instructions, but preparing an estate tax return (state or federal) is a job for an expert, and your executor will need to hire professional help. The fee, which can be paid from estate assets, will likely by several thousand dollars.
The Maryland estate tax return is due nine months after the death unless the executor requests and receives an extension. If tax is due, it must be paid nine months after the death, whether or not an extension to file is granted, unless the state also authorizes an alternative payment schedule, where payments are temporarily deferred or paid in installments.
Even if the estate isn’t required to file a federal estate tax return, you must complete a federal return and file it with the state return.