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.
Changes to federal and state laws can also affect your estate plan. Below is a brief summary of some of the significant developments in, and features of, federal and Maryland law that you should consider in evaluating your current estate plan:
- The SECURE Act
In late 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act. Among other changes to established retirement plan law, this legislation requires most non-spouse beneficiaries of inherited IRAs to take distributions to drain the IRA within ten years of inheriting it, essentially eliminating the beneficiary’s ability to stretch IRA distributions over his or her life expectancy.
- Federal Estate/Gift Tax Exemption
The per person lifetime federal estate/gift tax exemption is $11.58 million for 2020. This means that an individual can transfer up to that amount through lifetime gifting or upon death, free from federal estate and gift tax. The federal estate/gift tax exemption will “sunset” on January 1, 2026; the per person federal exemption 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 unused portion of a spouse’s exemption 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.
- Annual Gift Tax Exclusion
The annual gift tax exclusion remains at $15,000 in 2020–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 $11.58 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).
- Maryland Estate Tax Exemption & Portability
The Maryland individual estate tax exemption amount is currently $5 million. Maryland also permits “portability”—surviving spouses can elect to claim the unused portion of their predeceased spouse’s Maryland estate tax exemption (under certain circumstances).
- Changes to Maryland’s Spousal Elective Share Law
In 2019, the General Assembly revamped Maryland’s spousal elective share law for decedents dying on or after October 1, 2020. The spousal elective share law is intended to protect a surviving spouse from disinheritance by giving a surviving spouse the right to elect to receive a minimum portion of their deceased spouse’s estate. Under the existing statutory framework, a surviving spouse’s elective share rights applied only to the deceased spouse’s probate estate–in other words those assets passing under the deceased spouse’s will or through intestate succession. It did not apply to non-probate assets, such as assets in a revocable living trust. In brief, under the new law, the spousal elective share will extend to a much more broad set of assets–the deceased spouse’s “augmented estate”–which includes both probate and non-probate assets. - Maryland Inheritance Tax
Maryland’s ten percent (10%) inheritance tax remains unchanged for 2020. 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 current estate plan, or if you have questions about recent changes in the law, please give us a call. We’d be happy to meet with you at your convenience.