Maryland levies both an inheritance tax and an estate tax, in addition to the federal estate tax. Here is an overview of what you need to know about probate and how the state’s laws vary according to different family situations, among other topics. Estate planning is a complicated topic, though, and it’s a good idea to work with a financial professional to guide you through the process. If you don’t already work with one, consider finding a financial advisor in your area.
Does Maryland Have an Inheritance Tax or Estate Tax?
Maryland has both an inheritance tax and an estate tax. Most families do not have to think about the federal estate tax, because of the exorbitantly high $11.18 million estate exemption the federal government now levies for the tax. However, residents of Maryland or those who own property in Maryland should keep in mind both the inheritance tax and estate tax when doing estate planning. The current Maryland inheritance tax rate is 10%, and the estate tax is a graduated rate that ranges from 0% to 16%, depending on the size of the estate.
The difference between the estate tax and the inheritance tax is that the estate tax is charged to the entire estate, no matter who is inheriting. The inheritance tax only applies to certain heirs of an estate, and is charged to the heirs, rather than to the estate itself.
Some individuals are exempt from the inheritance tax in Maryland, depending on their relationship to the decedent. Currently, property that passes to a spouse, parent, grandparent, sibling, step-parent, step-child, child or other lineal descendant, spouse of a child or other lineal descendant, or a corporation that has only people in this category as stockholders, is entirely exempt from the Maryland inheritance tax. A primary residence owned by domestic partners held in joint tenancy at the time of one partner’s death is also exempt from the inheritance tax. However, property that passes to any other beneficiary than those mentioned is subject to the Maryland inheritance tax.
The Maryland inheritance tax is only placed upon property that passes under a will, under the terms of a trust, deed, joint ownership, payable on death designation, Maryland intestacy laws, or otherwise. However, life insurance that is payable to the decedent’s estate is the only type of life insurance included in the value of the estate.
Property that is given away “in contemplation of death” is also subject to the Maryland inheritance tax. In other words, if you give away a “material part” of your estate within two years of passing away, the property you gave away also becomes subject to the inheritance tax.
The estate tax threshold for Maryland was $4 million in 2018, and increased to $5 million for 2019. If the worth of your estate after you die is worth less than the estate tax threshold, the estate won’t owe anything to the state of Maryland. However, for each dollar above the estate tax threshold, there is a progressive tax rate, going up to 16%, that your estate will need to pay before your heirs can collect their inheritance. In addition, starting in 2019, the exemption will be portable, which means a married couple gets a double exemption after both spouses have died. Starting in 2019, the estate tax threshold for married couples ends up effectively being $10 million after their death.
Other Necessary Tax Filings
After you pass away, there are many federal and estate tax situations that will become relevant for those who survive you. Besides the state estate and inheritance taxes, you need to look out for the following:
- Final individual federal and state income tax returns – the federal tax returns are due by Tax Day of the year following the individual’s death. The state tax return is due nine months after the death of the decedent unless the executor requests and receives an extension.
- Federal estate/trust income tax return – due by April 15 of the year following the individual’s death
- Federal estate tax return – due nine months after the individual’s death, though an automatic six-month extension is available if asked for prior to the conclusion of the nine-month period
- This is required only of individual estates that exceed a gross asset and prior taxable gift value of $11.4 million
The Internal Revenue Service requires each estate to have its own employer identification number (EIN) to represent itself in any tax-related matters. To apply for an EIN, visit the IRS website or apply by fax or mail.
Dying with a Will in Maryland
There are certain basic requirements to make a will valid in Maryland. The will must be in writing. The person making the will, or the “testator,” must be at least 18 years old. The testator must also have legal capacity, which means they understand the purpose of the document they are signing. In order to finalize your will in Maryland, you must sign your will in front of two witnesses, and your witnesses must sign your will in front of you. Maryland generally does not accept handwritten wills, unless you are a member of the United States Armed Forces serving overseas.
If the will is determined to be valid, the next step is the probate process. Maryland is not a state that is part of the Uniform Probate Code, but much of the probate process is similar to that of other states. Probate proceedings are tend to only be required if the decedent owned any assets in their name only. Other assets, also known as “non-probate” property, can generally be transferred to the other owner without probate.
Maryland offers a simplified probate procedure for smaller estates. The simplified procedure is available if the property subject to probate has a value of $50,000 or less. If the surviving spouse is the only beneficiary, the cap goes up to $100,000 or less. The property value is defined as its fair market value minus any liens or encumbrances. The executor files a written request with the local probate court requesting to use the simplified procedure. The court can decide whether to grant or deny the requests.
Dying Without a Will in Maryland
Dying without a will isn’t ideal if you care about estate planning or deciding where your assets will end up after your death. Maryland inheritance laws define these types of estates as “intestate,” which means there is no will, or no valid will. The court then follows intestate succession laws to determine who inherits your property, and how much of it they inherit.
If there isn’t a will, the court will appoint a someone to serve as the personal representative of the estate. The personal representative effectively does the same job as an executor. Executors take care of the estate of the decedent. Notice must be given to all heirs and beneficiaries, as required by the court.
When someone dies intestate, there are often extenuating factors. If you can help it, it’s best not to die intestate and put your loved ones through the stress. If you’re not sure what kind of estate plan you should make, you can seek the help of a financial advisor specializing in legacy planning.
Spouses in Maryland Inheritance Law
If you pass away intestate with a spouse but no living parents or children, your spouse will inherit all intestate property; that is, the property that does not have a named beneficiary. However, if you have living parents or children after you pass, your spouse will get half more of your intestate property, depending on the age of your children.
If you have living parents, but no children, your spouse will inherit $15,000 of the intestate property and then half of the remaining property. Your parents will inherit the other half of the remaining property.
Children in Maryland Inheritance Law
If you have no spouse and any of your children are alive, they are the only heirs to your estate. However, if your spouse is alive, that’s a different story. If you have children who are minors, your spouse will inherit half of the intestate property and your children will inherit the other half. If you have no minor children, your spouse will inherit $15,000 of the intestate property and then half of the remaining property. Your descendants or children will inherit the other half of the remaining property.
|Intestate Succession: Spouses and Children|
|Inheritance Situation||Who Inherits Your Property|
|Children but no spouse||– Children inherit everything|
|Spouse but no children or parents||– Spouse inherits everything|
|Spouse and children who are minors||– Spouse inherits half |
– Children inherit half
|Spouse and descendants, but no children who are minors||– Spouse inherits $15,000 plus half of the remaining balance |
-Descendants inherit half of the remaining balance
|Spouse and parents, but no descendants||– Spouse inherits $15,000 plus half of the remaining balance |
– Parents inherit half of the remaining balance
The legal status of your children is extremely important when it comes to inheriting under the laws of intestacy. Legally adopted children have just as much right to their inheritance as biological children do. However, foster children and stepchildren that were never legally adopted by you are not eligible to receive a share as your child. However, if you have no other living relatives, stepchildren have the right to inherit. If you placed your child up for adoption and that child was adopted by another family – other than your spouse – they are not legally eligible to receive intestate inheritance from you.
Children born outside of marriage are eligible to inherit. If you were not married to the mother of your child when she gave birth to your children, they are still eligible to inherit as your children if you married the mother after their birth and acknowledged your paternity, acknowledged your paternity in writing, openly recognized them as your children, or a court determined paternity. Grandchildren only receive a share if their parent – your child – is not alive to receive their share.
Posthumous children are also eligible to inherit. Posthumous children are born after your death but conceived by you. They are still entitled to their share even though they were born after your death. If the child is conceived by artificial insemination, they must be born within two years of your death to inherit. You must have also provided written consent to be the parent and must have also consented in writing to the use of your genetic material for posthumous conception.
Unmarried Individuals Without Children in Maryland Inheritance Law
If there are no spouses or children, the inheritance then goes to the closest living relatives, in the order listed in the chart below.
|Intestate Succession: Extended Family|
|Inheritance Situation||Who Inherits Your Property|
|Parents||– Parents inherit everything|
|Siblings but no parents||– Siblings inherit everything|
The intestate process is designed to ensure your property stays in the hands of your family. However, even if that is what you want, it is generally best to write your own will to ensure that all of your property ends up in the hands you want it in.
Non-Probate Maryland Inheritances
The probate process can be difficult and expensive. However, there are ways of avoiding the probate process in Maryland. The list below goes over some of the assets that will not have to go through probate and instead go directly to the beneficiaries, even if you have not made a will.
- Any property in a living trust
- Life insurance policies
- 401(k)s, IRAs, other retirement accounts
- Securities in transfer-on-death accounts
- Pay-on-death bank accounts
- Joint tenancy real property
- Tenancy by the entirety
Other Situations in Maryland Inheritance Law
Maryland has a survivorship period. In order to inherit under Maryland’s intestate succession law, the heir in question must survive the decedent by at least 30 days. In addition, relatives conceived before you die but born after your death are eligible to inherit as if they had been born while you were alive.
Immigration status is irrelevant when it comes to inheritance. If a relative of yours is entitled to a share of your assets, they can inherit no matter what their citizenship status is. Half-relatives inherit as much as “whole” relatives. For example, your half-sibling would get the same share as any other sibling.
If you give an heir property during your lifetime, the value of that gift can be subtracted from your relative’s share, but only if it is in writing at the time the gift was made, or if the heir admits it in writing.
There are certain protections provided in the law if family members commit crimes. A parent is ineligible for their share if they are convicted of certain violent crimes against their child, including child abuse and violent or sexual acts against the child. A parent is also ineligible for their share if they are convicted of those same crimes against the child’s other parent, or if – in cases of incest – the other parent of the child is also the child of the parent.
Resources for Estate Planning
- Consider talking to a financial advisor about estate planning. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
- One option for ensuring your estate is handled the way you want it to is a living trust, a legal arrangement that allows you to transfer control of certain assets to a trustee while you’re still alive. Here is a full explanation on what’s involved with a living trust, and how to set one up in Maryland.
Photo credit: ©iStock.com/Vito Palmisano, ©iStock.com/MikeBagley64, ©iStock.com/Coast-to-Coast, ©iStock.com/SeanPavonePhoto