Coming towards the end of the 2014 legislative session, the Maryland General Assembly passed a bill on March 20, 2014, to increase the Maryland estate tax exemption over the next few years and eventually recouple with the federal estate tax exemption. It is expected, despite the election year, that Governor Martin O’Malley will sign the bill, as reported by the press.
Currently, individuals can give away $5.34 million at death without paying a federal estate tax. However, currently, if you are a Maryland resident and have a taxable estate of $1 million or more, you will pay a Maryland estate tax. This has caused many affluent Maryland residents to reconsider the locale to where they retire, as a short trip even across the Potomac can reduce death taxes, and benefit loved ones.
Prior to the Bush tax cuts in 2001, the federal and Maryland estate taxes were “coupled” (or at the same level), and the federal government offered a tax credit on the estate tax return for state-level estate taxes paid. However, when Congress increased the federal estate tax exemption, many states, including Maryland “decoupled” or kept the estate tax exemptions at the lower level so they would not lose revenue. The federal government also phased out the tax credit.
Under the new law, the Maryland estate tax exemption will increase to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, $4 million in 2018, and recouple with the federal exemption in 2019. The federal exemption, which is indexed to inflation, is projected to be $5.9 million in 2019.
This should be good news for Maryland, which is losing wealthy residents to states that have no estate tax, such as Virginia and Florida. See http://www.forbes.com/sites/ashleaebeling/2014/03/20/maryland-to-cut-estate-tax-as-blue-states-fall-in-line/ for more information.