What legislative changes affect the Maryland estate tax?

The federal Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA of 2001) began phasing out the federal estate tax, increasing the filing exemption amounts, beginning with estates of decedents dying on January 1, 2002. Although the full repeal of the federal estate tax is not effective until 2010, the Act provides that the credit for state death taxes allowed under § 2011 of the Internal Revenue Code will be reduced by 25 percent each year, starting in 2002, until completely eliminated by 2005. Maryland's estate tax is based on this credit.

In response to the federal act, Maryland passed the Budget Reconciliation and Financing Act of 2002, effective for estates of decedents dying on or after January 1, 2002. These provisions "de-coupled" Maryland from the phase-out of the federal credit for state death taxes. The Maryland estate tax was then determined by using the allowable federal credit for state death taxes without reduction by any Act of Congress enacted on or after January 1, 2001. At this time, the filing requirement remained the same: a Maryland estate tax return was required to be filed only when a federal return was required for a Maryland decedent or an estate that included Maryland property.

Subsequent passage of Maryland's Budget Reconciliation and Financing Act of 2004 has now further "de-coupled" Maryland from the federal tax by freezing the unified credit at the amount that corresponds to an applicable exclusion amount of $1,000,000 for purposes of determining the Maryland estate tax. This means that for decedents dying after December 31, 2001, a Maryland estate tax return is required for estates whose gross estate plus adjusted taxable gifts is valued at $1,000,000 or more. See What are the requirements for filing a Maryland estate tax return?

The 2004 Maryland legislation further provided that the Maryland estate tax is now determined without regard to any deduction for state death taxes allowed under § 20158 of the Internal Revenue Code. When the U.S. Congress repealed the credit for state death taxes, it authorized a deduction in its place on the federal estate tax return. This deduction is disallowed when calculating the Maryland estate tax.

Additional changes to the Maryland estate tax were made during the 2006 legislative session of the Maryland General Assembly. For decedents dying after December 31, 2005, the Maryland estate tax cannot exceed 16 percent of the amount by which the decedent's taxable estate exceeds $1,000,000. In addition, a decedent's estate is now authorized to make an election on the Maryland estate tax return to treat property as marital deduction qualified terminable interest property for purposes of calculating the Maryland estate tax. An election on the Maryland estate tax return to treat property as marital deduction qualified terminable interest property shall be recognized for purposes of calculating the Maryland estate tax even if an inconsistent election is made for the same decedent for federal estate tax purposes.

Finally, legislation enacted during the during the 2009 session of the Maryland General Assembly (Chapter 202, Acts of 2009) amended three sections of Title 7 of the Tax-General Article relating to the filing of the Maryland estate tax return. The amendments to §7-305(a) and (b) changed the requirement that the Maryland estate tax return be filed with the local Register of Wills, to allow the Maryland estate tax return to be filed directly with the Comptroller. Amendments to §7-305(c) and §7-306(c) require that all amended Maryland estate tax returns be filed directly with the Comptroller. Finally, the amendment to §7-232 created an option concerning the mode of certification of inheritance taxes paid on behalf of each decedent.

Since the changes require that Maryland estate tax returns be filed with the Register of Wills or with the Comptroller, and that all amended Maryland estate tax returns be filed with the Comptroller, the amendment to §7-232 provides that each Register of Wills shall certify to the Comptroller the amount of inheritance tax paid on behalf of each decedent for whom a Maryland estate tax return is filed with the Register or for whom the Register receives a request for the certification from:

• the Comptroller;
• the personal representative of the decedent's estate; or
• any person required to file a Maryland estate tax return with regard to property passing from the decedent.

The Act took effect July 1, 2009 and is applicable to all decedents dying after December 31, 2008.