On March 19th of this year, the Maryland legislature approved a bill that would raise Maryland’s current state estate tax exemption from its current $1 million leve. The Maryland legislation, which is expected to be signed shortly by Governor Martin O’Malley but as of today it is still awaiting his signature would eventually raise the Maryland state exemption level to the federal estate exemption level.

Currently, assets forming part of a Marylander’s estate upon his or her death in excess of the $1 million threshold would be subject to astate-imposed estate tax this year. Unlike the 2014, federal estate tax exemption amount of $5.34 million. The Maryland legislation provides for the estate tax threshold to continue to rise until it is aligned with the federal estate tax exemption in the year 2019. In 2015, the threshold will be $1.5 million; in 2016, $2 million; in 2017, $3 million; in 2018, 4 million; and finally, in 2019, an amount equal to the federal threshold (which is projected to be $5.9 million in that year once it is adjusted for inflation).

The issue of raising or eliminating state estate taxes has become a recurring debate among the less than half of U.S. states that impose such a taxⁱ. In deciding whether to repeal, phase out, or increase state estate taxes, legislatures have to weigh the foregone revenue that would result from collecting less money in taxes versus the potential for Maryland residents to move out of state in order to avoid the tax. Maryland was, after all, named to Forbes’ “Where Not to Die” lists in both 2013 and 2014 – something lawmakers recognized as negatively impacting Maryland’s “national reputation.” Proponents of raising the threshold in Maryland – which currently kicks in over $4 million earlier than the federal estate tax does – suggest that not only might residents leave the state as they near retirement age, they might choose not to move there in the first place, which would affect the state’s economy.

Figures on how much revenue is actually lost due to those leaving the state for tax reasons are of course clouded by the fact that many leave for entirely unrelated reasons -the desire to move to a warmer climate, or to be closer to family members. Regardless, Maryland’s judgment on this issue has now caused it to fall in line with other states doing away with their state estate taxes entirely. Midwestern states such as Indiana, Ohio, and Kansas and southern states like Oklahoma and North Carolina have recently repealed these taxes. Maryland’s recent developments are notable due to its large Democratic constituency (eliminating the so-called “death tax” on the wealthy has commonly been an issue advanced by the Republican Party). The fact the 2014 is an election year for Maryland to elect a new governor to replace Martin O’Malley and the numerous rumors floating around that Governor O’Malley wants to seek higher office probably aided in the legislation’s passing.

It should still be noted, however, that Maryland residents with significant assets are not completely out of the woods: Maryland is one of only two states – New Jersey is the other – that impose an inheritance tax in addition to their own estate tax. Immediate family members, ,i.e. those members in the familial line to the decedent, are exempt from paying state inheritance taxes; however, those outside this small circle are subject to a 10% tax rate on anything they inherit. As always, careful estate planning and knowledge of these important legislative developments can help keep money within the estate for future generations to enjoy.