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New Jersey Inheritance Tax Reform! A Message for Maryland

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Like many states, Maryland has adopted legislation gradually increasing the states estate tax exemption. By 2019, Maryland’s exemption will be identical to the federal exemption$5 million, indexed to inflation. But there is a catch. Even if a beneficiary owes no estate tax, he or she may still owe a separate“inheritance” tax. Close relatives are generally exempt from the tax but others may pay 10% on whatever they inheritsubject to a number of exceptions.

Maryland is one of only two states that have both estate and inheritance taxes. New Jersey is the other. New Jersey is now considering reform of both. A bill that would both increase the estate tax exemption to the federal level and eliminate the inheritance tax now has 27 sponsors in the New Jersey Statehouse.

New Jersey legislators from both parties argue that the inheritance tax can be arbitrary, exempting spouses or siblings but applying to other relatives, such as cousins, nieces or nephews, who may have been close to the deceased. Family can mean different things to different people, complained New Jersey resident, Susan Barbey, who began a personal crusade for reform after seeing high taxes imposed on her mother’s estate.

In Maryland, a spouse, child, parent, brother or sister would be exempt, as would certain other lineal descendants and surviving spouses. Bequests to charitable and not-for-profit organizations are exempt. Some assets and insurance proceeds are exempt. Small inheritances (under $1000) and very small estates (under $30,000) may be entirely exempt.

New Jersey Governor Chris Christie has indicated he would sign a bill reforming his state’s estate and inheritance taxes if it reached his desk. That would leave Maryland as the only state with two death taxes. While recent reform may help with some aspects of Maryland estate planning in the future, current law remains a minefield of taxes, exemptions and exceptions. Individuals uncertain about the impact of estate or inheritance taxes on their wills should seek the advice of experts.

The Bethseda and Rockville, Maryland estates, trusts, and probate attorneys at Longman & Van Grack have years of experience working with all types of estate planning issues. If you have an estate, trust, or tax question or concern, call (301) 291-5027 to schedule a consultation.

 

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