Life Insurance and Estate Taxes in Maryland | Upper Marlboro Estate Attorney
If you live in Upper Marlboro and carry a large life insurance policy, you may be surprised to learn that those proceeds can trigger Maryland estate taxes even if your federal estate is well under the national exemption.
I’ve had many local families come to me, assuming their life insurance is tax-free across the board.
That’s a dangerous assumption, and one that could cost your heirs thousands of dollars if not adequately addressed.
Let’s break down what every family in Prince George’s County should know when it comes to life insurance and estate planning.
Your Life Insurance Is Part of Your Taxable Estate in Maryland
In Maryland, estate tax rules are different from the federal ones.
While the federal estate tax exemption currently sits in the millions, Maryland’s threshold is much lower.
If the value of your estate, including life insurance payouts, exceeds that threshold, your estate may owe taxes to the state before your loved ones see a dime.
Even if the policy pays out directly to your children or spouse, it still counts toward your taxable estate if you owned the policy at the time of your death.
Why That’s a Problem for Upper Marlboro Families
Life insurance policies are often taken out with the best of intentions to make sure a spouse, child, or other loved one is financially secure after you’re gone.
But if those proceeds get reduced by estate taxes, your loved ones may end up with far less than you planned.
For example, if you have:
- A $600,000 home in Upper Marlboro,
- A $500,000 life insurance policy,
- And some retirement savings,
You’re already over Maryland’s estate tax exemption.
And remember—Maryland is one of the only states that still has both estate and inheritance taxes. Planning is critical.
The Solution: Irrevocable Life Insurance Trusts (ILITs)
One of the most effective ways to shield life insurance proceeds from estate taxes is to move them into an Irrevocable Life Insurance Trust, or ILIT. Here’s how it works:
- The trust—not you—owns the life insurance policy.
- You designate beneficiaries within the trust.
- When you pass away, the proceeds go into the trust and are not included in your taxable estate.
This simple move can preserve the full value of your policy for your family and keep the payout out of probate and off the estate tax radar.
Timing Matters: Don’t Wait Until It’s Too Late
Setting up an ILIT isn’t something you want to put off.
If you move an existing policy into the trust, there’s a three-year look-back period.
That means the policy could still be taxed if you pass away within three years of transferring it.
That’s why I encourage my Upper Marlboro clients to take care of this while they’re still healthy.
If you’re setting up a new policy from the start, you can name the ILIT as the owner immediately and avoid the look-back period altogether.
Estate Planning Is About Protecting What You Leave Behind
I know life insurance isn’t a fun topic—but neither are taxes.
The good news is that you can do something about it.
A few simple planning steps now can make sure your family gets every dollar you intended, without surprise tax bills or delays.
If you’re in Upper Marlboro and need assistance with setting up an ILIT or reviewing how your life insurance fits into your estate plan, I’d be happy to guide you through the process.
My goal is to help you leave a legacy, not a liability.
Let’s protect what you’ve worked for.
👉 Book your consultation online now or call us directly at 301-627-5844.
Matthew J. Dyer, Esq.
Estate Attorney | Haskell & Dyer, Upper Marlboro, MD
