Maryland is one of the few states that imposes an Inheritance Tax. The tax is 10% of the amount inherited from a decedent domiciled in Maryland (or the value of Maryland real property inherited from a decedent domiciled elsewhere). Close relatives and charities are exempt.
While spouses are exempt from the Inheritance Tax, until recently, unmarried partners were treated the same as unrelated individuals[1]. Obviously, this could create a significant financial hardship for a surviving partner who commingled finances with or relied on a deceased partner for support. Even joint accounts are subject to the tax (on one-half of the date of death balance). Pre-tax retirement accounts (401k, 403b, IRA, etc.) are taxed on the gross value. Thus, in a case where most assets were in pre-tax accounts (which is common), the survivor might be forced to withdraw from the pre-tax account, pay income tax on the withdrawal, then use the net balance to pay the Inheritance Tax.
Recognizing the unfairness of assessing Inheritance Tax on a surviving partner, simply because the couple chose not to marry, the Maryland legislature recently passed a new law that exempts many domestic partners from the Maryland Inheritance Tax. Effective October 1, 2023, domestic partners who register with the Register of Wills are exempt from inheritance tax on property that one inherits from the other.
More information about registration is available at the Register of Wills website at https://registers.maryland.gov/main/publications/Domestic%20Partnership%20Registration.pdf
While the inheritance tax exemption is a clear benefit, there may be other factors to consider before deciding to register as domestic partners. Contact one of our attorneys to review whether a registered domestic partnership is appropriate for you.