New Maryland Real Estate Tax
January 1, 2005

On May 26, 2004, Maryland substantially changed its estate tax, and it may mean more dollars out of your pocket. This new law attempts to recapture much of what was formerly reimbursed to the states by the federal government. Under this new law, your estate may owe Maryland estate tax even if it does not owe any federal estate tax. The immediate adverse impact is on estates over 1.0 Million Dollars. The tax burden is heaviest upon estates between 1.0 Million Dollars in value and the amount of the federal estate tax exemption equivalent, currently 1.5 Million Dollars. The new Maryland estate tax is on the differential between the Maryland and federal exemption equivalents. This amounts to a tax of $64,400 on $500,000.

As the federal limit continues to move higher over the next several years, the Maryland estate tax will also increase. Click here to view a chart showing the year, the federal exemption equivalent, and the Maryland estate tax payable.

Additionally, estates not required to file a federal estate tax return may now, under the new law, be required to file Maryland estate tax returns with valuation and appraisal summaries and a detailed list of assets. The exact process calls for filing the first three pages of the Federal Tax Return (Form 706) even if one need not be filed. This means additional costs and expense to the state. The supporting schedules for the Form 706 should be kept in case of a state audit.

Because the State of Maryland now imposes taxes on estates which may not be subject to federal estate tax, we strongly recommend that you have your estate tax plans, wills and revocable trusts reviewed to determine if your estate will be subject to the Maryland estate tax. Further, the payment of Maryland estate tax may affect the funding and qualification of the federal estate tax marital deduction and Credit Shelter Trust. If you currently have a Credit Shelter Trust established under your Last Will and Testament or Revocable Trust Agreement, it should be reviewed and the tax implications explained. Unfortunately this will likely result in changes on your estate planning documents and added out-of-pocket expense. A decision on how to plan for the new Maryland estate tax is best discussed in a meeting together with your legal counsel.

Please note additional taxes can also arise if you have property in states other than Maryland.

If you have questions, please contact:
John R. Wise, Esq.

(410) 752-2468