what is the maryland estate tax marital deduction
TRANSCRIPT
WHAT IS THE MARYLAND ESTATE TAX MARITAL DEDUCTION?
“As you go through life traversing your career path, at every turn you are required to pay taxes. Of course there is a federal income tax, and here in Maryland where we practice law, there is a state
income tax. Then you have property taxes, capital gains taxes, sales tax on your purchases, and so-called “hidden” taxes on
things like gasoline, alcohol, hotel rooms, etc.”
Colleen Sinclair Prosser
Annapolis, Maryland Estate Planning Attorney
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 2
As you go through life
traversing your career path, at
every turn you are required to
pay taxes. Of course there is a
federal income tax, and here in
Maryland where we practice
law, there is a state income
tax. Then you have property
taxes, capital gains taxes,
sales tax on your purchases,
and so-called “hidden” taxes
on things like gasoline, alcohol,
hotel rooms, etc.
Since you pay all of these
taxes while you are alive, you
would probably like to think
that the taxation will end when
you pass away. Many people would say this would be the fair approach, but the
reality is that there are estate taxes that can come into play.
FEDERAL ESTATE TAX
The estate tax on the federal level carries a 40 percent maximum rate, and this
can have a significant impact on your legacy if you are exposed. Fortunately,
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 3
most Americans are exempt, because there is a relatively large exclusion or
credit. The exclusion is the amount you can transfer before the estate tax would
kick in.
This paper is being written in 2016. For the rest of this calendar year, the exact
amount of the federal exclusion is $5.45 million. Each year since 2012 there have
been inflation adjustments, so
the figure could rise when the
new year rolls around.
In addition to the federal estate
tax, there is also a federal gift
tax. This tax exists to stop
people from giving gifts to avoid
the estate tax. The exclusion is a
unified exclusion. It applies to your estate, but it also applies to large gifts that
you give during your life. As you give lifetime gifts, you would be reducing the
amount of the exclusion that would be left to apply to your estate.
ESTATE TAX MARITAL DEDUCTION
Now that you understand the ins and outs of the federal estate tax, we can look
at the estate tax marital deduction. You can transfer unlimited assets to your
spouse free of taxation using this deduction. This is true for gifts that you give
during your life, and you can also arrange for unlimited tax-free transfers after
you pass away.
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 4
To be clear, because of this deduction, you would not be using any of your
unified exclusion to transfer assets to your spouse.
However, if you are married to someone who is a citizen of a country other than
the United States, the situation is different. The unlimited marital deduction is
not available to non-
citizens.
There is a solution that
exists if you are married to
a citizen of another
country as a person who is
exposed to the estate tax.
You could convey assets
into a legal structure called
a qualified domestic trust.
If you establish this type of
trust, and you predecease
your spouse, the trustee
could distribute the
earnings from the trust to
your surviving spouse, and
the estate tax would not be applicable. Of course, regular income taxes would
apply.
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 5
STATE-LEVEL ESTATE TAX
As we stated previously, our firm practices law in the state of Maryland. There
are 15 states in the union that impose state-level estate taxes, and as luck would
have it, Maryland is one of them. At the present time, the exclusion on the state
level is just $2 million. As a result, your estate could be exposed on the state
level, even if you are exempt on the federal level.
There is also an unlimited marital deduction on the state level, so you can
transfer any amount of money and/or property to your spouse without incurring
any Maryland state estate tax exposure.
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 6
SUMMARY
You should understand the lay of
the land when it comes to
taxation when you are devising
your estate plan. Transfer taxes
can enter the picture if you have
been particularly successful from a
financial standpoint.
There is a federal estate tax, and
here in the state of Maryland,
there is also a state-level estate
tax that can be applicable to you
even if you are exempt from the
federal tax.
The good news is that there is an
unlimited marital estate tax
deduction that applies on both levels. You can use this deduction to transfer
unlimited assets to your citizen spouse tax-free.
Transferring everything to your spouse tax-free is not necessarily an estate tax
solution, because your spouse would then be in possession of an estate that
could be taxed after his or her passing. There are comprehensive tax efficiency
strategies that can be implemented. To explore them, schedule a consultation
with a licensed estate planning attorney.
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 7
REFERENCES
Internal Revenue Service
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax
Forbes
http://www.forbes.com/sites/deborahljacobs/2013/01/09/a-married-couples-
guide-to-estate-planning/
Comptroller of Maryland
http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Estate_a
nd_Inheritance_Tax/
What Is the Maryland Estate Tax Marital Deduction? www.sinclairprosserlaw.com 8
About the Author
Colleen Sinclair Prosser Currently the owner and manager of SinclairProsser Law, LLC, Colleen steers her firm with both a guiding hand and direct involvement with the clients, bringing to the table a wealth of Estate Planning experience from many years spent at the helm of a busy law practice. In the past Ms. Prosser served on the Board of Trustees for By Their Side, Lifelong Advocates for
Marylanders with Developmental Disabilities, and on the Board of Governors of the American Academy of Estate Planning Attorneys. EXPERIENCE An established member of the American Academy of Estate Planning Attorneys, Colleen offers years of experience in estate preservation and transfer. A strong proponent of the living trust, she also focuses on wills, powers of attorney, living wills, probate, trust administration, prenuptial agreements, nursing home planning, and special needs planning. She strongly endorses long-term care insurance and, in certain cases, life insurance and some annuities as valuable estate preservation vehicles, and strives to assure the compatibility of her clients’ estate plan and financial plan. Sensitive to the challenges presented by lifestyle and circumstance, Colleen addresses each situation with personal attention, wisdom, and skill.
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