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Limited Maryland Inheritance Tax Exemption Adopted for Domestic Partners

Author: Donna M. McMillan Date: 01/25/2010

Categories: Estate Planning and Administration, Partnership Planning

Because domestic partners in Maryland presently have no legally recognized relationship to one another, when one domestic partner dies, the devise of his or her estate to the other is subject to the Maryland inheritance tax at the rate of ten percent (10%). This is one of the greatest costs for which unmarried couples must plan, either by purchasing sufficient insurance or otherwise. The Maryland Legislature has now carved out a limited exemption from this 10% inheritance tax for the devise of an interest in the couple’s jointly owned principal residence to the survivor. While this does not come near the unlimited exemption afforded married couples from both inheritance tax and the Maryland and federal estate tax, nor the exemption from inheritance tax given to lineal descendants, parents, brothers and sisters of the deceased, and while it does not help those domestic partners who continue to own their properties separately, it is still a planning tool that should be considered.

In order to qualify for this exemption [set forth in Section 7-203(l) of the Tax General Article of the Annotated Code of Maryland, applicable to decedents dying on or after July 1, 2009], the following must occur:

  1. The surviving partner must provide evidence of the domestic partnership;
  2. Title to the real property must have been held by the partners as joint tenants with right of survivorship; and
  3. The real property must have been a joint primary residence (there is no indication of what proof of this might be required).

Evidence of the existence of a domestic partnership must be established as set forth in Section 6-101 of the Health-General Article of the Annotated Code of Maryland. The specific requirements for establishing the existence of a domestic partnership are set forth in the statute as follows:

  1. The surviving partner must provide an affidavit signed under penalty of perjury by the partners prior to the death of the deceased partner stating that they have established a domestic partnership; and
  2. The surviving partner must provide supporting proof in the form of any two of the following:
  • Joint liability of the partners for a mortgage, lease, or loan;
  • The designation of one of the partners as the primary beneficiary under a life insurance policy on the life of the other partner or under a retirement plan of the other partner;
  • The designation of one of the partners as the primary beneficiary of the will of the other partner;
  • A durable power of attorney for health care or financial management granted by one of the partners to the other partner;
  • Joint ownership or lease by the partners of a motor vehicle;
  • A joint checking account, joint investments, or a joint credit account;
  • A joint renter’s or homeowner’s insurance policy;
  • Coverage on a health insurance policy;
  • Joint responsibility for child care, such as guardianship or school documents; or
  • A relationship or cohabitation contract.

A sample of an Affidavit is appended to the end of this article.

These requirements are the same as those for establishing the right of a domestic partner to visit his or her partner in a hospital or residential treatment facility in Maryland if the partners have not already executed a valid Durable Power of Attorney for Health Care (Advance Medical Directive and Appointment of an Agent) naming each other as the decision maker and Agent. We strongly recommend that domestic partners jointly execute one or more counterparts of an Affidavit signed under the penalties of perjury that meet(s) the requirements of the statute and be prepared to provide the Affidavit and two of the other required items of proof at all times.

These measures are not applicable in Virginia, and may in fact be counterproductive. The District of Columbia has a much broader range of protections with its own requirements and is in the process of providing for even greater protection for domestic partners. Maryland domestic partners should be able to rely upon the application of Maryland law for estate planning if they are domiciled in Maryland.

Transferring an interest in the primary residence from one individual domestic partner to the other so that title to the property is held jointly can have gift or income tax implications depending on the structure of the transfer. Before any transfer of real property is undertaken, an attorney should be consulted with respect to gift tax, income tax and real estate related consequences of a transfer. An attorney can assist both of the domestic partners with proper planning so that all of the consequences and issues involved in the transfer are properly considered and addressed.

Sample Affidavit of Domestic Partnership

We, the undersigned Affiants do swear or affirm under the penalties of perjury and upon personal knowledge that the following statements are true and correct:

  1. We have established a domestic partnership with each other.
  2. We are at least 18 years old.
  3. We are not related to one another by blood or marriage within four degrees of consanguinity under the civil law rule.
  4. We are not married or a member of a civil union or domestic partnership with another individual.
  5. We are in a relationship of mutual interdependence in which each of us contributed to the maintenance and support of the other and the relationship.

WITNESS our hands and seals this _____ day of _________, 201_.

_________________________ [Seal] XXX

_________________________ [Seal] YYY

State of Maryland

County of ____________, to wit

I hereby certify that on this ____ day of ________, 201_, before me, a Notary Public for the State of Maryland and County stated above, personally appeared XXX and YYY, and made oath in due form of law under penalties of perjury that the matters and facts hereinabove set forth are upon their personal knowledge and are true and correct.

WITNESS my hand and Notarial Seal.

_____________________________
NOTARY PUBLIC

Printed Name _________________

My Commission Expires:
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