Death taxes in Maryland can apply to those still alive

By: Alan Suderman
Washington Examiner
Jul. 22, 2009

Maryland's inheritance tax revenues by fiscal year
2007: $ 47.8 million 2008: $ 49 million 2009: $ 50 million 2010: $ 51.4 million

Source: Maryland ComptrollerWho knows the true intentions of the dead? The taxman does, according to Maryland's Court of Special Appeals.

The court recently upheld earlier decisions that required a Montgomery County family to pay $138,518.53 in state inheritance taxes on gifts a rich uncle started giving a year and half before he died of a heart attack.

The case highlighted an unusual law in Maryland — and a few other states — that allows officials to determine that a gift from the dead was made to avoid taxes, even if made as much as two years before death.

The family of Dr. Edwin Cohn said he was "a vigorous man who had no thoughts of death when he made the gifts," according to court records.

But the Court of Special Appeals agreed with the Montgomery County Register of Wills that the octogenarian's decision to give $1.2 million to his extended family was made in "contemplation of death," and therefore the state's inheritance tax applied.

"The fact that Dr. Cohn was 87-years-old when he began transferring substantial assets to his next of kin might alone constitute substantial evidence," the court ruled, adding that Cohn's record of ill health also bolstered the register's argument.

Furthermore, Cohn had a "lifelong history of only modest gift-giving" -- more proof that he had death on his mind when he made big gifts late in life, the court said.

Cohn gave his two nephews $860,000 worth of an investment holding company in August 2002, and gave $55,000 each to seven grandnieces and grandnephews to help pay college tuition in January 2003. He died that November.

Inheritance taxes are targeted at gifts made shortly before death so "you can't dump your assets on your deathbed and avoid paying taxes," said Joseph Griffin, register of wills for Montgomery County. Inheritance taxes are targeted at gifts made shortly before death so "you can't dump your assets on your deathbed and avoid paying taxes," said Joseph Griffin, register of wills for Montgomery County.

The lawyer for the family could not be reached, but Bethesda tax attorney Jeffrey Katz said the state's law was poorly drafted and could be applied to gifts and other transactions dating back decades. People consider their death all the time, Katz said, not just the dying who are trying to avoid inheritance taxes.

"Why do people buy life insurance?" Katz asked.

Maryland is one of about a dozen states that levies inheritance taxes in addition to estate taxes. The inheritance tax rate is at 10 percent, and the state is expecting to bring in about $51 million from the taxes this fiscal year.

The General Assembly voted to exempt spouses, children, siblings, parents and grandparents from inheritance taxes in 2000, after the taxes had become a hot-button political issue.