At this time each year, we like to remind our clients to review their existing estate plans and consider whether any changes to their current plans are needed.
In general, we recommend that you undertake at least a cursory review of your estate plan on an annual basis. We recommend an in-depth review if there have been changes in your personal or financial circumstances, or if your goals for the distribution of your assets have changed since your current estate plan was developed. If you’re a business owner, it’s a good idea to evaluate succession plans annually as well.
Here are a few examples of personal and financial changes that could impact your estate planning:
• Your marriage or divorce (or the marriage or divorce of a family member);
• A birth, adoption or death in the family;
• Relationship changes;
• A move to a new state;
• A purchase of vacation property in another state;
• A change in financial circumstances, such as the receipt of an inheritance from parents or other relatives;
• Significant lifetime gifting of assets.
Aside from your personal and financial circumstances, changes to federal and state laws can also affect your estate plan. Below is a brief summary of some of the significant features of current federal and Maryland law that could impact your estate planning:
• Federal Estate/Gift Tax Exemption
The per person lifetime federal estate/gift tax exemption is $11.4 million for 2019. This means that an individual can transfer up to that amount through lifetime gifting or upon death, free from federal estate and gift tax. It’s important to note that the federal estate/gift tax exemption will “sunset” on January 1, 2026, meaning that the per person exemption amount will automatically revert back to $5 million (indexed for inflation) on that date (in the absence of further action by Congress).
• Portability
At the federal level, portability of the exemption from one spouse to another is available, provided a portability election is properly made following the death of the first spouse to pass. In other words, the estate of a married decedent can transfer any unused portion of the decedent’s estate tax exemption to the surviving spouse for use at the time of the surviving spouse’s death. Consequently, married couples with proper estate tax planning can transfer more than $22 million free of federal estate taxes.
• Annual Gift Tax Exclusion
The annual gift tax exclusion remains at $15,000 in 2019—this is the maximum amount a person can gift to another person this year without incurring any federal gift tax. Married couples can combine this exclusion and give gifts of up to $30,000 this year to an unlimited number of people free of federal tax. Annual gifts that do not exceed the $15,000 threshold do not count toward the current $11.4 million individual lifetime exemption.
• Unlimited Marital Deduction
Property left to a surviving spouse, no matter what the amount, is still totally exempt from Maryland and federal estate taxes (provided the surviving spouse is a U.S. Citizen). However, keep in mind that if the estate of the surviving spouse is large, it could be subject to estate tax at the time of that spouse’s death in the absence of proper planning.
• Maryland Estate Tax Exemption & Portability
The Maryland exemption amount was set to “link up” with, and equal, the federal exemption amount in 2019. However, when Congress voted to increase the federal exemption from $5 million to more than $11 million beginning in 2018, the Maryland General Assembly acted quickly to set the Maryland exemption amount at $5 million (beginning January 1, 2019). Also, Maryland now permits “portability”— surviving spouses can elect to claim the unused portion of their predeceased spouse’s Maryland estate tax exemption (under certain circumstances).
• Maryland Inheritance Tax
Maryland’s ten percent (10%) inheritance tax remains unchanged for 2019. Property passing from a decedent to most close relatives is exempt from inheritance tax, but more distant relatives, such as nieces and nephews, and friends, are subject to the tax.
If it’s been a while since you’ve reviewed your estate plan, we recommend that you give us a call to schedule an appointment so that we can review your current plan together. Please feel free to contact our office at your convenience.