Part of handling a decedent’s personal affairs in the probate process is addressing financial and legal obligations, which includes taxes at death. There are multiple types of taxes that may apply to a probate estate, at different stages throughout probate. Taxes are the responsibility of the estate administrator, either an executor named in the Will or a personal representative appointed by the probate court. Because our probate attorneys understand federal estate tax law and the laws of Maryland regarding estates, we are ready and able to assist anyone responsible for handling the financial and legal obligations of a decedent.
Tax matters are complex when you are handling the estate of a deceased loved one. The Maryland probate attorneys at Frame & Frame can help you navigate the landscape of tax laws that may apply to the decedent, the estate, the inheritance, and certain estate assets. We have decades of experience advocating for clients in all types of probate matters.
In general, there are three types of taxes at death that may apply:
- Decedent’s Income Taxes: The estate administrator, or his or her attorney, must file a final tax return for the deceased, reporting all income received from the date of the last tax filing to the date of death. Keep in mind that the individual may have other income aside from earning employment-related wages. In addition to information on a W-2 form, you must include earnings from other sources.
- Taxes Related to Estate Assets: Once a case is opened in probate court, the estate becomes a separate legal entity. Any assets that are part of the estate may incur tax liability, including real estate and personal property, for example:
- Income Taxes: An administrator or executor will open a bank account as part of the probate process, for purposes of depositing estate funds and paying debts that the decedent incurred before death. Any amounts collected, such as rent or sale of assets, may trigger income tax liability for the estate. Plus, the bank account itself could earn income if it is an interest-bearing account.
- Property Taxes: If the decedent owned real estate at his or her passing, it is the duty of the administrator or executor to pay all property taxes according to state and local tax laws in Maryland.
- Estate Taxes: An estate may incur this type of tax if the net worth of all assets exceeds a certain amount. Maryland enacted a statute that sets a $4 million exemption for all individuals who passed away in 2018. The exemption amount is $5 million for decedents who die after January 2019. This means that there is no estate tax liability for any estate worth less than these amounts, respectively. For estates valued at more than that amount, a progressive tax applies. If the estate is valued at more than $11,400,000 for a person who passes after January 1, 2019, the estate would also be liable for the federal estate tax.