MD state legislators are pushing to increase the Maryland estate tax exemption from $1 million to $5.3 million.
The Senate has not yet voted on the legislation. According to Forbes magazine, Maryland and New Jersey are the only states that have both state estate taxes and inheritance taxes.
Why the move to change Maryland’s estate tax exemption? Well, part of the answer lies in recent changes to federal tax law. Estates used to be reimbursed for state estate taxes by the federal government. Here’s some historical context from Greg David, columnist for Crain’s New York Business:
Until 2001, states could levy a 16% estate tax without worry because the amount was deducted from the federal tax owed. After 2001, the credit was eliminated and the state estate taxes became real money taken from the beneficiaries. Most states acted to eliminate their estate taxes as a result. Meanwhile, the federal government gyrated on estate taxes, raising the exempt amount, then eliminating the tax altogether, then re-imposing it last year. The feds now tax estates starting at $5.34 million (which adjusts for inflation each year) at the pretty steep rate of 40%.
Of the four surrounding Maryland, Delaware is the only state with a state estate tax in line with the federal exemption of $5.3 million. Washington D.C. has an exemption of $1 million. West Virginia, Pennsylvania and Virginia have no estate taxes. Unlike the others, Pennsylvania does have an inheritance tax, which depends on the value of the estate. If the Maryland legislation passes, the rise in estate tax exemption would take effect July 1, 2014.
But no story about estate tax is complete without mentioning the Sunshine State. Florida often gets cited as a mecca for old folks; the Sunshine State has no inheritance or estate tax. And of course,it’s sunny!