If you know a couple that is living together in a committed relationship and are not married, there is a significant change in Maryland Law that could save them many thousands of dollars.
Maryland has an inheritance tax of 10% if you leave property to people who are not close relatives. Exempted from that tax are spouses, descendants, parents, grandparents, and brothers and sisters. Among the people who pay 10% are “Domestic Partners:” people who live together in a committed relationship but are not married. As Maryland does not recognize common law marriage, a long-time “Significant other” pays a 10% tax.
One exemption to this tax is for jointly owned real estate of a Domestic Partner.
“Domestic partnership” is defined according to the definition of the term under the Health-General Article (relating to hospital visitation and medical emergencies). “Domestic partnership” is a relationship between two individuals who (1) are at least 18 years old; (2) are not related to each other by blood or marriage within four degrees of consanguinity under civil law rule; (3) are not married or in a civil union or domestic partnership with another individual; and (4) agree to be in a relationship of mutual interdependence in which each individual contributes to the maintenance and support of the other individual and the relationship, even if both individuals are not required to contribute equally to the relationship.
Several years ago, I had a client who was terminally ill. He was leaving his “Significant other” over $600,000 from his retirement plan. I told her of the tax she would need to pay. He discussed the possibility of marriage. He said he talked to his CPA, who assured him there was no such tax.
CPAs generally don’t work on inheritance tax issues and the CPA was wrong. When my client died, the inheritance taxes exceeded $60,000.
NEW MARYLAND LAW
Maryland has a new law taking effect October 1, 2023, that exempts from inheritance taxes all tax property owned by domestic partners if the Couple files a Domestic Partner Certification with the register of wills and it is accepted
. Although the forms are not yet in, the register of wills has presented a basic overview.
Parity with “Marriage” and “Spouse”
The bill alters various definitions and provisions in the Estates and Trusts Article so that, in many cases, a “registered domestic partnership,” and a “registered domestic partner” are treated the same as a marriage, and a spouse, respectively. In the following statutory provisions of the Estates and Trusts Article, the bill adds “registered domestic partnership” where the term marriage appears, and adds “registered domestic partners” where the term spouse appears:
- definition of a child;
- provisions related to intestate succession, including share of the surviving spouse, division among surviving issue, distribution when there is no surviving issue, and inheritance from a person born to or conceived by individuals who are not married;
- family allowance; and
- order of priority for letters of administration, appointing a successor personal representative, or appointing a special administrator, as specified.W
While you may not be living with someone you are not married to in a romantic relationship, you likely know someone who is cohabitating. If you do, I strongly suggest that you pass this newsletter on to them and recommend that they see an estate planning attorney as soon as possible. You could save a friend many thousands of dollars with this important information.
Conclusion:
The new law in Maryland regarding domestic partners and inheritance tax represents a significant step towards achieving equality, recognition, and financial security for domestic partners in Maryland. By providing the same inheritance tax exemptions as married couples, Maryland recognizes the value and validity of domestic partnerships and aims to eliminate disparities in tax burdens.
