CLIENT ALERT – Thousands of Marylanders Could Be Exposed to Greater Estate Tax Burden

In legislation that we will be keeping a close eye on, Maryland officials have proposed significantly reducing the state estate tax exemption from $5 Million to $2 Million.

This would expose thousands more Marylanders – and many Bulman Dunie clients – to estate tax.

What Is Estate Tax?

Put simply, estate tax is a tax on the post-death transfer of wealth.

There is an unlimited amount of wealth that can pass to a surviving spouse or to non-profits.

However, there is an “exempt” amount of wealth that can pass free from tax to children, grandchildren, and others. This is referred to as the “estate tax exemption”. Every dollar over the estate tax exemption is taxed at a rate of approximately 16%.

Presently, the estate tax exemption sits at $5 Million per individual. Under the doctrine of “portability”, under certain circumstances, spouses can combine their exemptions to pass up to $10 Million at the second death.

Under legislation proposed to fund significant revenue shortfalls, there is a proposal to reduce the exemption to $2 Million.

What Is Included in my Taxable Estate?

The best answer is your “taxable estate” (the assets exposed to estate tax) includes everything that you have control over as of the date of your death.

Interests in real estate, retirement accounts, pension benefits, brokerage and cash accounts, and even the policy proceeds from term life insurance policies are included in your taxable estate.

What is the Estate Tax Exemption in Other Surrounding Areas?

If this proposal is passed to reduce the state estate tax exemption to $2 Million, Maryland would become the most aggressive and least friendly jurisdiction in the immediate area when it comes to estate tax.

Virginia assesses no state estate tax.

Delaware assesses no state estate tax.

The District of Columbia exemption is approximately $4.5 Million.

What Should I Do?

In short, there is nothing we recommend doing right now (except maybe call or write to your legislator).

Keep an eye on this proposal. At this time, it is merely a proposal. This proposal would not be enacted until 2025, at the earliest.Governor Moore has indicated that he has no plans to raise tax during this budget cycle.

If the estate tax exemption is reduced, clients will need to consider more sophisticated tax planning and gifting. We also know from discussions with clients that many clients may consider establishing domicile in a more tax-friendly jurisdiction.

Keep your eye on Bulman Dunie newsletters, as we will update as this situation evolves.  If you have questions about your estate planning, please contact estate planning attorneys Liz Farley at lfarley@bulmandunie.com or  (301) 656-1177 x316 and Jeremy Rachlin at (301) 656-1177, or jrachlin@bulmandunie.com to schedule a review appointment.