New Maryland Estate Tax Exemption for 2019
Bill Introduced to Reduce DC Estate Tax Exemption in 2019
On April 5, 2018, Maryland enacted legislation that will set the amount exempt from Maryland estate tax at $5 million for decedents who die on or after January 1, 2019. Under prior law, the Maryland estate tax exemption was scheduled to equal the federal estate tax exemption by 2019.
Under prior law, the Maryland estate tax exemption was scheduled to equal the federal estate tax exemption by 2019. For decedents dying in 2018, the Maryland estate tax exemption remains at $4 million. Unlike the federal estate tax exemption, the new Maryland exemption will not be adjusted for inflation in future years. The new Maryland law also provides for “portability” of any unused Maryland exemption under certain circumstances. That means a surviving spouse may elect to use any portion of his or her deceased spouse’s unused Maryland estate tax exemption, if certain conditions are met. The maximum Maryland estate tax rate of 16 percent is unchanged by the new law.
The change in the Maryland estate tax exemption signals a new trend at the state level following the enactment of the 2017 Tax Act. We expect that many states will be reviewing and, in many instances, changing their tax laws in response to the sweeping changes brought by the new federal tax law.
For example, in the District of Columbia, where the estate tax exemption currently matches the federal exemption amount of $11.18 million, a bill was introduced in February that would “decouple” the DC exemption from the federal exemption and retroactively reduce the DC exemption amount to $5.6 million for 2018 (to be adjusted for inflation in future years). The substance of the estate tax bill will be included in the Budget Support Act, which we expect the City Council will vote on in June. We will be monitoring the status of the bill.
Virginia and Florida currently do not impose an estate tax at the state level.
Residents of Maryland and District of Columbia should review their existing estate plans and meet with their estate planners to determine whether any changes are advisable in light of new or pending state legislation. Because neither Maryland nor DC has a gift tax, Maryland and DC residents may wish to consider making lifetime gifts to reduce or eliminate Maryland and DC estate taxes. It is important to talk with your estate planner before making any gifts to ensure that they are properly structured for federal estate tax purposes and do not result in adverse income tax consequences.
Regardless of where you reside, it is important to review your existing estate plan and meet with your estate planner to determine whether any changes are advisable in light of the increased federal estate, gift and generation-skipping transfer tax exemptions (currently $11.18 million for 2018).
If you would like more details about wealth transfer opportunities, or if you would like to schedule an appointment to discuss your estate plan in light of new or pending state tax legislation or the 2017 Tax Act, please contact a member of our Estates & Trusts team.
