Why the Maryland Estate Tax is Unfair to Non-Maryland Residents owning property in Maryland and Maryland Residents owning property outside of Maryland.

What many people do not understand about Maryland is that not only are people who live in Maryland potentially subject to the Maryland Estate Tax (“MET”) but people who do not live in Maryland may also subject to the MET if they own real property in Maryland. In general terms, that makes sense – if you own real property worth more than the MET exemption amount, then you are subject to MET. However, it is not only those with Maryland real property worth more than the MET exemption amount who are subject to the MET.

Maryland currently has an exemption from MET equal to $1.5 million. In 2016, that exemption will increase to $2 million; in 2017, $3 million; in 2018, $4 million; and in 2019, the MET exemption is set to be equal to the federal estate tax exemption (currently $5.43 million and indexing each year for inflation). I should add an obvious caveat to the previous sentence, this law is only in effect for as long as the Maryland General Assembly (and the Governor) want it to remain in effect. There is no permanence in tax law.

For Maryland non-residents who own real property in the State of Maryland, the MET is calculated against the value of your “worldwide assets” not just your Maryland-based assets. However, once the MET is calculated against the value of your “worldwide assets,” one then must determine the percentage of these “worldwide assets” that are based in Maryland. That percentage is then multiplied by the MET calculation discussed earlier in this paragraph to determine the total MET due.

For example, if the value of a decedent’s worldwide assets is $5,000,000 and, included in that value is $500,000 worth of Maryland-based property, the total Maryland estate tax based on the full $5,000,000 is $391,600. For a non-Maryland resident whose only Maryland asset is worth $500,000 or 10% of his or her worldwide assets, the decedent’s estate will have to pay $39,160 to the Comptroller of Maryland.

This does not appear to be an equitable result, however, at the current time, the State of Maryland has not implemented any changes to this law.

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