Will My Heirs Have to Pay Maryland’s Inheritance Tax?
Maryland is one of the few states to collect an inheritance tax as part of the probate process. This means that you need to be aware of what types of inheritances are considered taxable as part of your own estate and succession planning. And while the prospect of your heirs paying any tax at all might seem troubling, it is worth noting that in many cases, various gifts made by a will or trust are exempt from the tax altogether.
What Is the Inheritance Tax?
First, let’s establish what we are talking about. The inheritance tax is a state tax imposed on “the privilege of transferring property,” according to the Maryland Comptroller’s office. This includes property transferred under a person’s will or trust, or if they did not have an estate plan via Maryland’s intestacy laws. In fact, inheritance taxes may apply to other non-probate transfers that occur on a person’s death, such as a “payable on death” bank account or the sale of a home where the deceased was a co-owner.
The inheritance tax is 10 percent of the “clear value: of the inherited property. This basically means the property’s fair market value (at the time of the owner’s death) less certain permissible expenses. When the owner dies, the personal representative of his or her estate is normally required to file an inventory with the court, listing all of the decedent’s assets together with their fair market values. But again, it is important to emphasize that the inheritance tax may apply to property that is not part of the actual probate administration, which only covers assets governed by a will or intestacy law.
What Are Maryland’s Inheritance Tax Exemptions?
Although the basic inheritance tax rule may sound simply–pay 10 percent of the clear value of any inherited property–Maryland law contains multiple exemptions. The most important one is that no property is subject to tax if it passes from the deceased owner to any of the following relatives:
- grandchild or any further lineal descendant (great-grandchild, great-great-grandchild, etc.);
- sibling; or
- spouse of a child or lineal descendant.
So for example, if you make a will leaving all of your property to your children and grandchildren, they will not have to pay any inheritance taxes. But if you are living with an unmarried partner and leave any property to them, they will have to pay inheritance tax.
Here are some other common exemptions to Maryland’s inheritance tax:
- life insurance benefits payable to an individual, but not the estate of the insured person;
- property left to a 501(c)(3) charitable organization;
- property left to the state, city, or county;
- property left to any person where the value does not exceed $1,000; and
- all property belonging to a “small estate,” which is defined by Maryland law as an estate worth less than $50,000 (or $100,000 if the only heir or beneficiary was the spouse of the deceased).
Contact a Maryland Estate Planning & Succession Lawyer Today
Inheritance taxes are just one of many tax-related issues you need to think about when making an estate plan. An experienced Maryland estate and succession planning attorney can provide you with additional guidance. Contact the offices of Henault & Sysko Chartered today at 410-768-9300 to speak with a member of our legal team.