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Maryland Portability

We have previously covered the federal estate tax changes implemented by the Tax Cuts and Jobs Act (TCJA) here and here. We also explained how these changes impact state estate taxes for Maryland residents. A recent article written by Franklin Karibjanian and Law PLLC points out an important new wrinkle in the Maryland estate tax law.

As we discussed in our previous posts, the TCJA increased the federal estate tax exemption from $5.45 million to $11.2 million per individual, and indexed those amounts for inflation. Married couples are also allowed to elect portability, which allows the surviving spouse to assume their spouse’s exemption amount, providing married couples with an exemption of over $22 million. This means most married couples who die with assets of less than $22 million will not be subject to Federal estate taxes.

Unfortunately, many states impose their own estate tax, and these often differ substantially from the federal estate tax. Maryland had been gradually increasing their estate tax exemption amount each year to bring it in line with the federal estate tax exemption prior to the TCJA. After the TCJA was enacted, Maryland passed a new law that would keep their state estate tax exemption at the old federal level of $5 million. This new amount is not indexed for inflation and will not increase over time.

While Maryland “decoupled” from the federal estate tax exemption amount under the new law, they also added the portability option that is allowed under federal estate tax law, beginning in 2019. That means married Maryland residents have a combined state estate tax exemption amount of $10 million, which is still well below the federal exemption amount but significantly higher than it had been in recent years.

According to the article by FKL Law, this portability election is retroactive back to 2011. That means if your spouse passed away in 2011 or later, you might be able to retroactively increase your state estate tax exemption amount by electing portability. “For years prior to 2019, Maryland portability is entirely dependent upon a proper federal portability election having been made”. If no such election was made, there are some avenues for relief, which are spelled out in the article.

If you think you this might be applicable to you, please reach out to us or your estate tax attorney to learn more. 

-Chris Benson, CPA/PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.