Estate Tax Exemptions in the DELMARVA Region: D.C. Decouples, Maryland Caps, Virginia Holds Out, Delaware Repeals

For several years, the DELMARVA Region jurisdictions (District of Columbia, Maryland, Delaware, and Virginia) were moving toward matching the Federal exemption with the exception of Virginia which has no state estate tax. Then the Federal estate tax at the end of 2017, TCJA voted to change the Federal estate tax to $11.18M per person. This move complicated the DELMARVA Regions moves toward uniformity with the Fed.

Before TCJA, the plan was to increase D.C.’s exemption from $2.0M to match the federal exemption as of January 1, 2018. However, when the federal exemption increased to $11.18 million in 2018, D.C. did not follow suit. Instead, they stayed the course matching the previous federal exemption $5.6M in 2018. Estates that are subject to this tax in D.C. should consult with an attorney to determine the compliance requirements.

Moreover, on September 5, 2018, the D.C. mayor signed the 2019 Fiscal Year Budget Support Act of 2018, making the estate tax exemption of $5.6M permanent with cost of living increases. Congress is reviewing the new act now. Unless Congress fails to approve, the Budget Support Act will become enforceable law on October 27, 2018.

In Maryland, the estate tax exemption increased by $1 million for 2018. In 2017 the estate tax exemption was $3.0M, now it is $4.0M. In yet another state, there was legislation that would have created a match between the federal exemption and Maryland’s exemption by 2019. However, new state legislation passed April 5, 2018, caps Maryland’s estate tax exemption for 2019 at $5 million. The one difference between Maryland and D.C. is Maryland allows a surviving spouse to save the first spouse to die’s unused exemption amounts beginning in 2019. (This concept known as “portability,” has existed for the federal estate tax exemption since 2011.)

DELMARVA/DC Estate Tax Rates and Exemptions 

Top Rate2017 Exemption2018 Exemption2019 ExemptionPortabilityAdditional Inheritance Tax
Federal40%$5.49M$11.18M$11.40M*YesNo
VirginiaN/AN/AN/AN/ANo
DC16%

$2.0M

$5.60M$5.60M**NoNo
Maryland16%$3.0M$4.0M$5.0MYesYes

Delaware

N/A$5.45MrepealedN//AN/ANo

* Estimate based on cost of living and inflation adjustments

** Increased by local cost-of-living adjustments

Virginia abolished its state estate tax in 2007. Several bills in recent sessions of the Virginia General Assembly proposed reinstating the estate tax, but the efforts gained little traction.

Delaware, as of January 1, 2018, abolished its state estate tax. It felt, as a state, the small amount of tax being collected from taxable estates was not worth detracting potential residents. Delaware with no state income tax is very attractive to retirees and wealthy citizens. The legislature felt as a state that they were losing out to Florida. To turn the tide, they voted to eliminate the state estate tax as of January 1, 2018.

These changes in law outlined above further exemplify the already divergent treatment of state estate tax among neighboring jurisdictions. Trustees and Executors must take steps to ensure compliance with the recent changes in law and the complexities that arise in estates that have assets in multiple jurisdictions. Estates merely have to have assets in these states to be subject to the tax, they do not have to be resident. It is important to consult an attorney who is familiar with all of these laws upon the death of a loved one to make sure there is compliance within the time frames allotted.

Additionally, individuals who recently created or updated their estate plans, under the assumption of the increased state estate tax exemptions, may wish to revisit and revise their estate plans in light of the recent changes. The chart below highlights the major differences in estate tax law for the DELMARVA Region.

For a comprehensive nationwide guide to state estate tax exemptions, rates, and other issues, see our updated Estate Tax Page, written by partner Rhonda A. Miller.

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Posted in: Estate Planning