In Maryland, the passing of a resident may result in the estate being subject to both federal and state taxes. In addition to estate taxes, the state also imposes an inheritance tax. However, with careful planning and the legal assistance of a knowledgeable Montgomery County Tax Attorney, you can minimize your estate taxes to ensure your loved ones are left with as much support as possible. Please continue reading to learn about the best ways to reduce your Maryland tax liability.
What Are Estate Taxes?
When someone passes away in Maryland, the estate or its beneficiaries may be subject to estate taxes if a descendent leaves behind more than $5 million. An estate tax is a tax on your right to transfer property at your death. These taxes are levied on the estates of wealthy individuals after they die, but before they die, the money is given to their heirs, which is why it’s often referred to as the “death tax.”
It’s crucial to understand the distinctions between estate tax and inheritance tax. Maryland imposes an inheritance tax, which is a tax on the privilege of receiving property. Maryland’s estate taxes are separate from the federal tax imposed on estates worth more than $13.61 million. Therefore, even if your estate is not large enough to owe federal estate taxes, you may still be subject to Maryland estate taxes.
How Can I Reduce My Tax Liability in Maryland?
Through careful estate planning, numerous ways exist to minimize your exposure to estate taxes. As such, it’s crucial to enlist the help of an experienced attorney who can help you determine the best legal strategies to accomplish your goals. Generally, the simplest way to reduce your tax liability is to gift assets. You can keep your estate under the threshold by gifting assets to family members or making charitable donations. Maryland has no gift tax, meaning you can make fits in any amount at any time to reduce the size of your estate.
Moreover, the most effective way to minimize your tax liability is for individuals whose estates are above the threshold to set up trusts to facilitate this transfer of wealth. You can create an irrevocable life insurance trust. By transferring life insurance into an irrevocable life trust, your death benefits would not be considered part of your estate. This means that they will not be subject to estate tax. However, if you die within three years of making the transfer, the death benefits would still be considered part of your estate and, therefore, taxable.
As you can see, there are several ways to reduce your estate taxes during estate planning. At JD Katz, we understand how complex these matters can be and how important it is to take the necessary steps to safeguard your loved ones. Contact our legal team today so we can help you determine the best strategy for your unique circumstances.
