“The Maryland estate tax shall be determined without regard to any deduction for State death taxes allowed under § 2058 of the Internal Revenue Code”
During the 2018 session, the Maryland legislature enacted a bill in response to the Federal Tax Cuts and Jobs Act of 2017 to limit the state’s estate tax exclusion amount at $5 million. This $5 million cap isn’t indexed for inflation, but the recently passed legislation does permit for portability between spouses of the deceased spouse's unused exclusion amounts. Portability allows the personal representative or executor of the deceased spouse to make an election on the decedent's estate tax return to transfer or “port” the deceased spouse's unused exclusion amount (called the “DSUE amount”) to the surviving spouse.
LegiScan notes in “MD HB308” that Maryland's estate tax exclusion amount has been "de-coupled" from the federal estate tax applicable exclusion amount (known as the "estate tax exemption") since 2004. However, a law enacted in 2014 provided for the eventual re-coupling of the Maryland Estate Tax Exclusion Amount to the Federal Applicable Exclusion Amount. This was phased in from 2014 through 2019. Full re-coupling was to be effective for decedents dying on or after January 1, 2019.
In effect, the 2014 Maryland law provided that for decedents dying on or after January 1, 2019, the Maryland estate tax exclusion amount would equal the amount that could be excluded under the federal estate tax. Prior to the passage of the Tax Cuts and Jobs Act in December 2017, the indexed federal exclusion amount was scheduled to be $5.7 million in January of 2019.
However, with the new tax reform, the federal exclusion amount was upped to $10 million per person, indexed for inflation, for decedents dying on January 1, 2018, or later, through December 31, 2025. After indexing for inflation, the per person exclusion amount will be roughly $11.18 million in 2018.
Starting on January 1, 2026, the $10 million per person federal exclusion amount will sunset and return to the prior exclusion amount of $5 million per person, indexed for inflation.
The maximum Maryland estate tax rate of 16% is not altered with the new legislation.
In addition, the state’s inheritance tax is also unchanged. That rate is based on how closely related the decedent was to the people who inherit from him or her, rather than on the size of the estate. The inheritance tax doesn’t apply to surviving spouses and the children of a decedent.
The new Maryland exclusion amount isn’t effective for decedents dying in 2018. The prior 2014 law still applies to those people, which is an exclusion amount of $4 million per person. The 2014 amount also isn’t indexed for inflation and doesn’t allow for portability between spouses.
Reference: LegiScan (April 5, 2018) “MD HB308”