Note: This blog does not substitute for legal advice.
The recent session of the Maryland General Assembly has come to a close and we will start to recap how some of the passed legislation will impact Maryland’s agricultural community. Our first look back is at the recoupling of the state’s estate tax with the federal estate tax over the next 5 years. Currently, Maryland’s estate tax exemption is set at $1 million for non-agricultural property and $5 million for agricultural property meeting certain criteria (See Estate Planning for Farm Families for a full description of the ag property exemption). In Maryland this means that the first $1 million in your estate passes tax free to your heirs and anything over the $1 million is taxed at 16 percent. Currently, the federal estate tax exemption is set at $5.34million and this exemption is pegged to inflation so it will increase each year depending on the rate of inflation. As you can see, the federal estate tax exemption is much higher and will gradually increase over time.
The Maryland General Assembly passed HB 739 and SB 602 and recently signed by the governor will recouple or tie Maryland’s state estate tax exemption back to the federal estate tax exemption something that has not happened since 2001. This will not happen overnight, but the exemption will be gradually increased over the next 5 years. Starting in 2015, Maryland’s estate tax exemption will look like for those dying between:
· Jan. 1, 2015 to Jan. 1, 2016: $1.5 million;
· Jan. 1, 2016 to Jan. 1, 2017: $2 million;
· Jan. 1, 2017 to Jan. 1, 2018: $3 million;
· Jan. 1, 2018 to Jan. 1, 2019: $4 million; and
· Jan.1, 2019 and till changed: will be at the federal estate tax exemption.
The state estate tax rate will remain at 16 percent for portions of the estate in excess of the exemption. This change will not impact the exemption for those with qualifying ag property.
What does this change mean for many of you? Those of you with existing estate plans should consider checking in with your attorney to see if changes need to be made to your current estate plans. Your attorney may have developed estate plans under the old state estate tax system and your plans may need some updating to conform with the changes. Those of you that haven’t developed estate plans, may want to start considering contacting an attorney to start the conversation about developing an estate plan. You may also want to start considering who the successor to your operation will be, working with that successor to make sure he/she has the skills necessary to take the farm over, and including the succession plan into your current estate plan.
The publication Estate Planning For Farm Families will be updated in the coming weeks to reflect this recent change to state law. Sign up for email updates on this blog to know when this publication is revised or any new publication becomes available.