Estate tax changes are a poor idea

Maryland is the only state with both an inheritance tax and an estate tax. Maryland’s politicians claim that by eliminating the inheritance tax and reducing the exemption for the estate tax from $5 million to $2 million for single decedents the tax code will be simplified.

Maybe it will be, but don’t be fooled. The result will be to impose an estate tax on many more Maryland estates then would otherwise be taxed, while eliminating the ability to pass assets, free of an inheritance tax, to spouses, children, grandchildren, parents and other lineal heirs.

This is simply because an estate tax is calculated on the net estate in excess of the exemption amount at the rate of 16% while the inheritance tax is based on the relationship of a beneficiary to the decedent. With the reduction of the exemption, many more Maryland estates will be subject to the estate tax, and because the $2 million exemption is not indexed to inflation under this proposal even more Maryland estates will be subjected to the estate tax in the future.

To some $2 million may appear to be a lot of money but it really is not. With the inflated prices of real estate, ownership of a life insurance policy, being a beneficiary of a revocable trust, hard work over the length of a career, a decent savings plan and a few well-planned investments a $2 million estate is very achievable these days.

To some, Maryland’s estate tax has made Maryland a state in which it is too expensive to die. And, these changes to the estate tax will increase the number of people whose tax planning activities include relocation to another state. That is unfortunate for Maryland which should be growing a tax base instead of squeezing its existing base.

But the loss of an appreciable sum of assets to an estate tax that would otherwise be bequeathed to heirs is a lot to ask most Maryland residents to swallow, especially when the amount of the tax otherwise payable to Maryland could aid in relocation by easily paying for a very nice house in a different state

A proposal to index the exemption amount to the federal estate tax exemption has been suggested, but it is not likely to be seriously considered as too many estates would escape taxation. In 2025 the federal exemption is $13.99 million.

Some high income and asset residents have left Maryland due to its high income tax rates, which now included a proposed surtax on capital gains, and the estate tax. This does not enhance the reputation of the governor or Maryland as a state that wants to attract and help grow business to increase the tax base.

Reduction of the estate tax exemption will likely drive more Marylanders to leave the state and establish residence in tax-friendly jurisdictions, so they can pass to their heirs most of what they have worked hard to accumulate.

The lyrics of an old song by The rock group Ten Years After may say it best. “… Tax the rich… ’til there are no rich no more. …” We think the reduction of the exemption is a terrible idea and ask the legislature and the governor to reconsider before irreparable damage occurs to Maryland.

Editorial Advisory Board members Susan Francis and Jeff Sovern did not participate in this opinion.

EDITORIAL ADVISORY BOARD MEMBERS

James B. Astrachan, Chair

James K. Archibald

Gary E. Bair

Eric Easton

Arthur F. Fergenson

Nancy Forster

Susan Francis

Julie C. Janofsky

Ericka N. King

George Nilson

Catherine Curran O’Malley

Angela W. Russell

Debra G. Schubert

Jeff Sovern

H. Mark Stichel

The Daily Record Editorial Advisory Board is composed of members of the legal profession who serve voluntarily and are independent of The Daily Record. Through their ongoing exchange of views, members of the board attempt to develop consensus on issues of importance to the bench, bar and public. When their minds meet, unsigned opinions will result. When they differ, or if a conflict exists, majority views and the names of members who do not participate will appear. Members of the community are invited to contribute letters to the editor and/or columns about opinions expressed by the Editorial Advisory Board.