There are five sets of death taxes that are relevant for Maryland residents:
First, there is Final Personal Income Tax (Federal and Maryland), which refer to the income taxes that the deceased person would have had to pay in the year they died. This is something that most people are already familiar with, as they file their own income tax returns on an annual basis.
The second type of death tax is Estate Tax (Federal and Maryland). These are assessed regardless of whether the estate has been opened or not. If the decedent had assets worth $5 million or more in 2023 for example, then they will be subject to Maryland estate tax.Β
Estate Tax returns are similar to Personal Income Tax returns – you need to file at the state and federal level, even if there are no federal taxes to report. It wasnβt too long ago when any family with a house (even if fully mortgaged) was subject to Estate taxes as the District of Columbia exemption was only $600,000.00. For a long time, Maryland had a one million dollar exemption, which covers most homeowners with a retirement nest egg or Life Insurance policy.Β
Another type of death tax is a Fiduciary Income Tax (Federal and Maryland). This refers to reporting income that has been earned from the date of death until all accounts have been transferred to the beneficiaries. Generally, this type of tax applies to individuals with sizable investment accounts, however please consult with a Certified Public Accountant (CPA) to be sure.
Maryland is one of the few states that still imposes an Inheritance Tax. Direct family members are exempt from the Inheritance Tax. However, there is an ~11% tax for nieces, nephews, cousins, friends, unmarried partners, and former spouses, among others.
Finally, there is a Gift Tax. The Personal Representative of the Estate and the Trustee of the Trust are responsible for filing the Gift Tax return if the decedent had given any gifts in excess of the annual limit during their lifetime. In 2023, that limit is $17,000.00.Β
Navigating these various taxes can be very challenging, even if someoneβs situation looks simple at the surface level. That is why we strongly recommend consulting with a Probate attorney, someone like us, and a CPA in advance of any estate distributions, even if you typically prepare your own tax returns.
Please call us at 301-696-0567 or self-schedule at lenaclarklegal.com if you would like help protecting your assets and loved ones in the event of death or disability.
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