Same-Sex Marriage and Estate Administration: The Rules until Equality in 2013
New Years is not my favorite holiday. Midnight glasses of champagne with friends and family are all well and good, but for some strange reason January 1 rarely yields any lucid opponents for a fair round of golf in the morning. (Every other day of the year it’s completely unfair for anyone to have me on their team.) But for once, this year I’ll have something to look forward to: estate equality.
Before I tell you what I mean by that, I’ll need to provide a short recap of Maryland’s decisions on same-sex marriage this year. Keep in mind that I’m not arguing the pros or cons of such a marriage. That argument is for others elsewhere. I’m just talking about the facts of estate administration as they exist now and will exist in the future. Just bear with me—and pat yourself on the back—if you’re aware enough to already know all this.
On May 18 in Port v. Cowan, the state’s Court of Appeals handed down a ruling recognizing as valid same-sex marriages performed in other states. Basically, if you marry your same-sex partner elsewhere then take up residence here, the court says that’s fine. You just can’t marry them here.
Furthermore, as of 2013, same-sex marriages can be legally formed in Maryland per the passage of HB 438, as long as the law survives the expected referendum. Come January, the same estate-planning benefits already enjoyed by members of traditional marriages will then be extended to everyone else.
But what if you’re a member of a same-sex marriage who resides in Maryland and you or your spouse die in the next six months?
There is a degree of uncertainty here, but it appears that you wouldn’t get the same benefits as if you had died next year.
Specifically, it appears that the Maryland Comptroller’s Office will deny any surviving same-sex spouse the right to a marital deduction to soften the estate tax. However, it looks like the inheritance tax, which is handled by local Registers of Wills, will be waived for surviving same-sex spouses in that time.
If you’re confused by the difference between the estate and inheritance taxes, don’t be discouraged. Let’s break it down.
The estate tax is levied on the total value of a deceased person’s (“decedent’s”) assets. The state of Maryland taxes estates that exceed $1 million in value while the federal tax doesn’t kick in until the $5 million mark. Basically, the government taxes those assets when they are given to somebody else after the death.
The inheritance tax is levied as a percentage of the value of any asset being received by someone else after the death. Maryland’s inheritance tax is 10% of any asset worth more than $150. There is no federal inheritance tax.
The bottom line is that Maryland is one of only two states in the country that taxes a person twice when they die, when their assets are coming and going. Maryland and New Jersey are the only ones with both estate and inheritance taxes.
Now, the inheritance tax in Maryland does not apply to traditional spouses. If you die, you can give everything to your wife or husband and they will not be taxed upon receipt. As of January, same-sex spouses will have the same right—and even now, since the Registers of Wills are granting them an exemption from the inheritance tax.
The same is not true of the estate tax, which features a similar—but much more significant—marital exemption (the entire estate is untaxed if it goes to a traditional spouse). Unless you wait until 2013 to die (as though you’d have a choice in the matter), your same-sex spouse will not be able claim a marital exemption when the estate leaves your possession to go to them.
So it’s important to remember that while already-formed same-sex marriages are legally valid in Maryland, members of those marriages must live until 2013 to enjoy the privileges of estate equality.
Which really makes December 31 an evening to pop the champagne—and January 1 an even better day for me to be on the links.
Good luck and good hunting.
If you have any questions about estate equality or its implications on your marriage, you can find out how to reach us at our website: TheFisherLawOffice.com. You can also reach us at Facebook.com/FisherLawOffice, on Twitter @thefisherlawoffice, or at LinkedIn.com/in/FisherLawOffice. I can’t guarantee I’ll have an answer but I’ll do my best to help you out.