As we predicted in our December 2024 e-newsletter, Maryland indeed appears on the brink of significantly hiking the state estate tax imposed upon Maryland residents.
Governor Wes Moore’s budget proposal, if passed by the Maryland legislature, would see thousands more Marylanders exposed to estate tax, as Maryland would become the single-most aggressive jurisdiction in the DMV as it pertains to estate tax.
What is Estate Tax?
Estate tax is a tax upon the transfer of wealth upon one’s death.
All wealth transferred to a surviving spouse and a not-for-profit organization is exempt from estate tax.
Separate from these exempt transfers, each individual is permitted to transfer an amount of wealth that is exempt from estate tax (the “estate tax exemption”).
The estate tax exemption in Maryland is currently $5 Million. In D.C., it is currently $4.87 Million.
In most situations, only a post-death transfer to a non-exempt individual in excess of the estate tax exemption is exposed to estate tax.
Where Does Maryland Compare to Other States, and What is the Tax Rate?
While the federal government assesses estate tax (the federal estate tax exemption in 2025 is $13.99 Million), most states do not assess state estate tax.
Only 12 states and the District of Columbia assess state estate tax. Our neighbors in Virginia, Delaware, Florida, and Pennsylvania, for example, have no state estate tax.
In Maryland, the state estate tax rate is 16% of the value of assets above the state estate tax exemption.
What Is Governor Moore’s Proposal?
Governor Moore’s budget proposes reducing the Maryland estate tax exemption from $5 Million to $2 Million.
Notably, under Governor Moore’s budget proposal, spouses will continue to be able to make use of “portability”. Under this doctrine, if a first spouse leaves all their wealth to a surviving spouse (and therefore all wealth transfers is an exempt transfer), by the surviving spouse filing an estate tax return for their deceased spouse and electing “portability”, upon the surviving spouse’s death, he/she will receive the combined exemption of both spouses. Portability requires the surviving spouse not to remarry.
If passed, only three other states in the country would have exemptions at or below the Maryland exemption.
The lower the estate tax exemption, the more wealth that is exposed to estate tax.
What Assets Are Counted Against the Estate Tax Exemption?
In short, nearly everything that you own, including:
- The fair market value of real estate and tangible personal property
- Date of death value of investment accounts
- Date of death value of retirement accounts
- Date of death value of business interests
- Death benefits paid by life insurance policies (unless held by irrevocable life insurance trust)
- Checking and saving accounts
- Tax-deferred annuities and pensions.
It is far from the ultra-wealthy, who would be exposed to estate tax at a $2 Million exemption.
When Will We Know the Outcome?
It is, of course, possible that the $2 Million proposed exemption is not the final word, as the first hearing on Governor Moore’s proposed budget is in February. Both the Maryland House and Maryland Senate will hold hearings and take testimony.
The Maryland legislative session closes on April 7. As such, we expect to have the final word on Maryland’s estate tax exemption by mid-April.
What Should I Do Right Now?
If your spouse died in the last 5 years and if you did not file a Maryland Estate Tax Return electing portability, you should contact Bulman Dunie to discuss filing a Maryland Estate Tax Return for your deceased spouse. You are permitted to file a Maryland Estate Tax Return to make a portability exemption up to 5 years after your spouse’s death. Those who file a Maryland Estate Tax Return and elect portability will be able to “port” the estate tax exemption available at the time of their spouse’s death ($5 Million).
Aside from portability filings, we do not recommend our clients embark on any rash planning changes or immediately start looking at property in Delaware, Virginia, or Florida. The budget process in Maryland, like most jurisdictions, is complicated and unpredictable.
