By Michael Donnelly, Principal Maryland farmers have just received a substantial estate tax benefit from the State of Maryland.  On May 22, 2012, Governor O’Malley signed the Maryland Family Farm Preservation Act of 2012 (the “Act”).  The Act allows “qualified agricultural property” valued at $5,000,000.00 or less to pass from generation to generation without incurring Maryland estate taxes, provided that the land stays in agricultural use for at least ten (10) years after the death of the transferor.  The legislation also reduces the Maryland estate tax rate to five percent (5%) for the excess of qualified agricultural property valued over $5,000,000.00 down from the current sixteen percent (16%).  The Act is effective July 1, 2012 and shall be applicable to decedents dying after December 31, 2011. The Act applies to “qualified agricultural property” which passes to a “qualified recipient”.  Qualified agricultural property means real or personal property that is used primarily for farming purposes.  Farming purposes carries a meaning found in the Internal Revenue Code, which includes farming in all senses of cultivation and animal husbandry. A “qualified recipient” means any person, apparently even if not a family member, who has received the property from the decedent who owned the qualified agricultural property and which recipient also signs an agreement to use the property for farming purposes.  The statute neither defines the precise terms nor the parties to the Agreement other than recipient.  Presumably the agreement will be similar to that required by the Federal government when an estate elects application of “special valuation” rules under IRC §2032A. The Act maintains the same estate taxing structure for other property of the decedent farmer not qualifying as qualified agricultural property, namely the tax on such property will never be greater than sixteen percent (16%) of the value of such other property over $1,000,000.00. Any Maryland estate tax saved is recaptured, if within ten (10) years after the decedent’s death the qualified agricultural property ceases to be used for farming purposes.  The amount of estate tax imposed would be the additional Maryland estate tax that would have been payable at the time of the decedent’s death but for the provisions allowing for its exclusion.  Who pays the tax is not clear, but presumably that issue will be addressed in the agreement with the “qualified recipient.” The Comptroller will adopt regulations for implementation of this tax.  The devil will likely be in those details. This new rule is a significant opportunity.  However, it needs to be approached carefully in application as the laws full meaning is not yet entirely clear.  Watch for those regulations.