Estate taxes reduce how much someone leaves behind to their loved ones and to charitable causes after their death. Given that the federal exemption for estate tax is currently $11.7 million, you may not think you have to worry even if you have a sizable estate.
However, Maryland is one of the states than have an estate tax. Since its threshold for taxation is much lower, your estate could owe state estate taxes even if you don’t have to worry about federal taxes.
When is your Maryland estate subject to state estate taxation?
The Maryland threshold for estate taxation is substantially lower than the federal one. You only have to have $5 million worth of property in your estate for state taxes to take effect. Those with real estate holdings, investments and/or businesses in their name may find that their estate exceeds the threshold even if they are currently exempt from federal estate taxes or will likely exceed it when they eventually die.
Like the federal estate tax, the Maryland estate tax is progressive. The more the value of your estate exceeds the limit for the year when you die, the higher the tax rate is — up to 16%. Additionally, heirs who are not your spouse, child or other direct descendants, parent, sibling or immediate family member by marriage could be subject to an additional inheritance tax.
Careful planning, including the use of trust and strategic gifts, can reduce how much tax liability your estate will have after you die. The sooner you begin your estate planning, the easier it will be to mitigate that tax liability.