2023 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 2023, the lifetime federal estate and gift tax exemption is $12.92 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.

Property left to a surviving spouse, no matter what the amount, is still completely exempt from Maryland and Federal estate taxes (provided the surviving spouse is a U.S. Citizen). Also, at the Federal level, a surviving spouse can “port” the unused portion of their deceased spouse’s exemption, provided a portability election is properly made following the death of the first spouse to pass.

The annual gift tax exclusion is increasing to $17,000 in 2023.  You can make gifts of $17,000 or less to an unlimited number of people this year with no gift tax consequences. Married couples can combine this exclusion and give gifts of up to $34,000. Annual gifts that do not exceed the $17,000 threshold do not count toward the current $12.92 million individual lifetime estate and gift tax exemption.

The Maryland individual estate tax exemption amount remains at $5 million for 2023 and is not indexed for inflation.  Maryland also permits “portability” – a surviving spouse can elect to claim the unused portion of their deceased spouse’s Maryland estate tax exemption (under certain circumstances).

The spousal elective share law protects a surviving spouse from disinheritance by giving a surviving spouse the right to elect to receive a minimum portion of their deceased spouse’s “augmented estate” — which includes both probate assets (such as assets passing under the deceased spouse’s will or through intestate succession) and non-probate assets (such as assets in a revocable living trust).

Maryland is the only state that imposes both an estate tax and an inheritance tax. The ten percent (10%) inheritance tax rate remains unchanged for 2023. 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.

A 529 Plan is a tax-advantaged account for education savings. Distributions from a 529 Plan are tax-free when used for qualified K-12 private school tuition and higher-education expenses, but non-qualified distributions are subject to both a 10% penalty and federal income taxes on the investment gains. Beginning in 2024, investors may rollover up to $35,000 of unused 529 account funds to a beneficiary’s Roth IRA without any penalties or taxes. Annual Roth IRA contribution limits will apply to the rollovers (as well as other restrictions).

If it’s been a while since you’ve reviewed your current estate plan, or if you have questions about the information in this 2023 Estate Plan report, please give us a call. We’d be happy to meet with you at your convenience.