Maryland estate tax bill (HB 739 / SB 602) has passed both houses in the Maryland General Assembly (the House on March 7 and the Senate on March 20). Unless vetoed by the Governor, the new law will raise the Maryland estate tax threshold from its current $1 million to $1.5 million for those dying in 2015, $2 million for those dying in 2016, $3 million for those dying in 2017, and $4 million for those dying in 2018. In 2019 and later years, the Maryland estate tax exemption would be tied (“re-coupled”) with the federal estate tax exemption. The federal exemption is currently $5.34 million but is indexed for inflation and projected to be $5.9 million by 2019.
When the Maryland and federal exemptions are re-coupled, Maryland residents would be able to take advantage of the portability of estate tax exemption between spouses (the Maryland estate tax threshold is not portable now, as the federal exemption is). The re-coupling would also eliminate a current problem for Maryland residents who have non-citizen spouses: the inability to use a qualified domestic trust (QDOT) to claim the Maryland marital deduction for assets in excess of the Maryland threshold but under the federal exemption amount.
Changes to the estate tax laws and increases in income tax rates combine to make income tax planning for wealth preservation a much more significant factor for many estate plans. Building sufficient flexibility into the estate plan is key; it allows tax-planning decisions to be deferred until the variables–asset values, exemption levels, effective income tax rates, even family circumstances–are known. A number of techniques are available to take advantage of new estate and gift tax laws to minimize income tax over time. Those who made gifts to grantor trusts in prior years in an effort to reduce estate and gift tax may benefit from a review of those arrangements, to determine what income tax savings can now be achieved through further planning. If you postponed a review of an existing estate plan pending the outcome of tax legislation, this may be a good time to update your plan to ensure it is sufficiently flexible to accommodate income tax planning as well as estate and gift tax planning.
If you have questions about the impact of tax law changes on your estate planning, please contact any member of our estate planning and administration practice.