Thank you for participating in our recent webinar on Maryland estate planning, hosted by Eric Brotman, with invaluable insights from guest attorney Helen Smith.
Whether you joined us live or are reviewing the session after the fact, there are important concepts and strategies to reflect upon as you consider or revisit your estate planning needs.
Below, we’ve summarized the major concepts presented during the session, along with some practical advice as you move forward.
Major Concepts and Practical Insights
1. Understanding Maryland’s Estate and Inheritance Taxes
Maryland is Unique: Maryland is now the only state with both an estate tax and an inheritance tax. This makes its estate planning landscape more complex compared to many other states.
Estate Tax vs. Inheritance Tax:
Estate Tax is levied on the estate of a deceased person before assets are distributed.
Inheritance Tax is imposed on certain beneficiaries who receive inheritances, depending on their relationship to the decedent.
Exemptions and Rates:
Maryland’s estate tax exemption is currently $5 million (not indexed for inflation), while the federal exemption is much higher (~$14–15 million and rising with inflation).
Maryland’s estate tax rate is 16% on amounts above the exemption.
The Maryland inheritance tax rate is 10%, but only applies to non-exempt beneficiaries (nieces, nephews, friends, etc.—not spouses, children, grandchildren, parents, or siblings).
2. Federal vs. State Differences
Gift Tax Considerations: The federal government has an estate and gift tax regime—gifts made during life reduce your federal exemption. Maryland does not have a gift tax, so lifetime gifts can reduce your Maryland estate tax exposure without similar consequences at the state level.
“Piggybacking” Forms: MD estate tax returns “piggyback” on federal forms, even when the federal exemption is not reached.
3. Key Planning Documents for Every Adult
Essential Documents: Every Maryland resident over 18 should have:
A basic will,
Durable financial power of attorney,
Advance medical directive (health care proxy).
These documents ensure your wishes are honored and ease the administrative burden in times of crisis.
4. Importance of Beneficiary Designations and Asset Titling
Outdated Beneficiaries Are Common Pitfalls: Assets with beneficiary designations (retirement accounts, life insurance policies) pass outside of wills, so these must be regularly reviewed and aligned with your current wishes.
Asset Ownership Impacts Inheritance: Titling assets jointly, especially with one child for convenience, can disrupt intended distributions—evaluate titling carefully.
5. Portability and Trust Planning for Married Couples
Portability: Filing a federal estate tax return on the death of the first spouse can “port” unused exemption to the survivor, potentially doubling the amount shielded from estate taxes. Maryland also offers portability but with stricter procedural requirements.
Credit Shelter/BYPASS Trusts: Traditional planning still often involves setting up trusts to ensure both spouses’ exemptions are used, and to shield growth from further estate taxation.
6. Beneficiary Classes and Tax Exemptions
Who Pays Inheritance Tax? Spouses, children, grandchildren, parents, siblings, stepchildren, and registered domestic partners are exempt from Maryland inheritance tax. Friends, nieces, nephews, and most non-relatives are not.
7. Special Asset Considerations
Life Insurance:
Proceeds are included in your estate for tax purposes if you own the policy, but life insurance paid to any beneficiary—even non-exempt classes—is exempt from Maryland inheritance tax.
Using an irrevocable life insurance trust (ILIT) can move the death benefit outside your taxable estate.
Real Estate: Maryland estate tax only applies to property located in-state. If you move but leave property behind, your estate will still be subject to Maryland tax on that property.
8. Planning Strategies for Uncertain Legislative Changes
Tax Laws May Change: With Maryland’s fiscal challenges, it is likely (though not certain) that state exemptions will decrease, potentially subjecting more estates to tax. Plan conservatively.
Main Advice: Estate plans are not “set-it-and-forget-it”—they require periodic review, especially after major life events or legal changes.
9. Other Planning Topics Raised
Charitable Giving: Leaving retirement assets (like IRAs) to charity can be especially tax-advantageous.
Trust Protections: Trusts can also provide creditor, divorce, and generational protections alongside tax benefits.
Handwritten (“Holographic”) Wills: In Maryland, a handwritten will is valid if signed in the presence of two witnesses.
Estate planning is not just for the ultra-wealthy or the elderly. Maryland’s tax structure, combined with rising asset values, means many more families are affected. Regular reviews—with your attorney, financial advisor, and tax professional—ensure your documents, titling, and designations still match your goals and the current law.
Remember: estate planning is a living process. Your life changes, laws change, and your plan needs to change with them.
If you have not revisited your plan recently, consider this your call to action. Pull out those documents; discuss them with your advisors; and ensure your legacy is protected for those you care about most.