Category: Probate

February 15, 2018

State Estate and Inheritance Taxes after the Tax Cuts and Jobs Act

James D. Saintvil

The doubling of the federal estate tax exemption under the Tax Cuts and Jobs Act—from $5.49 million in 2017 to $11.18 million in 2018 ($11.4 million as of January 1, 2019)—has moved many wealthy Americans away from the impact of the federal estate tax. However, state estate taxes and state inheritance taxes remain a factor in estate planning for residents of a number of states, including Maryland and the District of Columbia. Moreover, a state-level estate or inheritance tax may be imposed on real estate located in a state with a tax even when the decedent resides elsewhere.

An estate tax is a tax levied on the decedent’s estate, which is paid before the estate is distributed to beneficiaries; the estate tax is calculated based on the value of all of the assets owned by the decedent at death. On the other hand, an inheritance tax is a tax imposed on the beneficiary of property and is based on the value of the inheritance that beneficiary received.

Currently, only a handful of states have an estate tax. These include the District of Columbia and Maryland as well as Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.

Jurisdictions with state exemptions that were scheduled to match the federal exemption amount (other than Connecticut), including the District of Columbia and Maryland, have reacted to the doubling of the federal exemption amount by enacting estate tax legislation to reduce their exemptions.

The District of Columbia’s estate tax exemption amount was scheduled to match the federal exemption in 2018, but D.C. enacted legislation to set the D.C. estate tax exemption at $5.6 million (to be adjusted for inflation in future years), retroactive to January 1, 2018.

Maryland’s estate tax exemption amount was scheduled to increase to match the federal exemption amount beginning January 1, 2019; however, Maryland enacted legislation in the spring of 2018 that instead fixed its exemption at $5 million as of January 1, 2019, with no adjustment for inflation.

The Maryland Legislature also included portability between spouses in the new law. Portability allows a surviving spouse to use a deceased spouse’s unused exemption amount. For example, if a spouse who dies in 2019 uses $3,000,000 of his or her Maryland estate tax exemption, the deceased spouse’s surviving spouse can receive the unused $2,000,000 exemption amount and add it to his or her state exemption amount so that the surviving spouse will have a total Maryland exemption amount of $7,000,000. There is no portability in D.C.

Currently, six states, in addition to, or in lieu of, an estate tax, have an inheritance tax: Maryland; Iowa; Kentucky; Nebraska; New Jersey; and Pennsylvania. Inheritance tax is imposed on the receipt of property from a decedent’s estate by a non-exempt beneficiary. There is no uniformity among state inheritance tax statutes; the rate varies by state as do the rules for determining which beneficiaries are exempt. For example, a child of the decedent and the child’s spouse are both exempt from inheritance tax in Maryland, whereas in New Jersey a child of the decedent is exempt, but the child’s spouse is not.

This disparity can be of particular importance when a decedent leaves real property, such as a vacation home, to his child and the child’s spouse. If the vacation home is in New Jersey, the child’s spouse incurs an inheritance tax on 50 percent of the value of the home; if the vacation home is in Maryland, the child’s spouse incurs no inheritance tax. If a decedent whose principal residence is in the District of Columbia, which does not levy an inheritance tax, leaves her vacation cabin in Stroudsburg, Pennsylvania, to her child, Pennsylvania will assess an inheritance tax on the value of the cabin; a child is not exempt from the Pennsylvania inheritance tax.

Congress’ doubling of the estate tax exemption took many individuals out of the purview of federal estate taxation, thereby diminishing the significance of the federal estate tax to their estate plans. However, for some individuals, state estate and inheritance taxes have become a more significant factor in estate planning.

Updated 02.15.2019.

October 17, 2017

“To my descendants, per stirpes…” (or… How do we pass the Packers’ tickets to our grandkids?)

Anne W. Coventry

Years ago, I described to a close friend (let’s call her Cathy) the difference between a division among descendants per stirpes and a division among the same descendants per capita at each generation.  In the midst of my explanation, Cathy suddenly exclaimed, “Oh!  You mean like the Packers’ tickets?”  This was a Eureka! moment; yes, […]

October 14, 2016

Nancy Fax named Lawyer of the Year in Trusts & Estates for DC Area for 2017

Pasternak & Fidis

Best Lawyers named partner Nancy Fax the Trust and Estates Lawyer of the Year in DC, Maryland and Virginia. Because the publication uses peer nominations to develop its selective list, we are especially proud of this recognition. Congratulations, Nancy! Additional Pasternak & Fidis attorneys were recognized as best lawyers in Maryland in their respective fields: Jan White in Collaborative Law: […]

May 16, 2016

Maryland enacts laws on Trusts and Digital Assets to take effect in October 2016

Anne W. Coventry

For a long time, the rule in Maryland has been that a divorce revokes the provisions of a will that benefit the former spouse, but we did not have the same rule for revocable trusts.  Beginning October 1, 2016, the same rule will apply to revocable trusts—divorce will revoke those provisions of the trust that […]

May 11, 2016

The PRINCE Act and “Name and Likeness” Rights: Sword and Shield?

Alex S. Tanouye

Lawmakers in Minnesota are acting quickly to pass the PRINCE Act, which is intended to protect one’s – specifically, Prince’s – name, voice, and likeness from unauthorized use for a 50-year period after death.  The law is aimed at protecting Prince’s legacy and the right of his estate to control future marketing of and revenues […]

February 12, 2016

Update on Fiduciary Access to Digital Assets

Anne W. Coventry

Your personal representative (the executor of your will) will need to read your emails.  This may not be something you’ve thought about before, but it’s true.  You get bank statements, bills, and even tax forms delivered to you only by email.  You have automatic, recurring payments set up from your checking account each month.  You […]