2022 Estate Planning Update

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:

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:

For 2022, the lifetime federal estate and gift tax exemption is $12.06 million per person.  This means that an individual can transfer up to that amount through lifetime gifting or upon their death free from federal estate and gift tax.  On January 1, 2026, the federal estate and gift tax exemption will automatically revert back to $5 million (indexed for inflation) in the absence of further action by Congress.  There is currently no proposed legislation to extend the existing federal estate and gift tax exemption rates, and the prospect of a potential extension is uncertain.

An early version of the Build Back Better Act included a provision that would have accelerated the reversion of the federal estate and gift tax exemption to $5 million (indexed for inflation) to the start of 2022, but that provision has since been removed from the latest version of the bill.  Provisions that would have largely eliminated the use of grantor trusts (including Irrevocable Life Insurance Trusts) as an estate planning tool have also been removed from the current version of the bill.

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.

The annual gift tax exclusion is increasing to $16,000 in 2022.  This is the maximum amount a person can gift to another person without incurring any federal gift tax.  Married couples can combine this exclusion and give gifts of up to $32,000 this year to an unlimited number of people, free of federal tax.  Annual gifts that do not exceed the $16,000 threshold do not count toward the current $12.06 million individual lifetime exemption.

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).

The Maryland individual estate tax exemption amount is currently $5 million (not indexed for inflation).  Maryland also permits “portability” – a surviving spouse can elect to claim the unused portion of their predeceased spouse’s Maryland estate tax exemption (under certain circumstances).

Maryland’s ten percent (10%) inheritance tax remains unchanged for 2022.  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.

The information in this notification should not be taken as formal legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.