2024 Annual 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 features of federal and Maryland law and new developments that you should consider in evaluating your current estate plan:

For 2024, the lifetime federal estate and gift tax exemption is increasing to $13.61 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.

However, on January 1, 2026, the federal estate and gift tax exemption amount will “sunset” back to $5 million (indexed for inflation to about $7 million) in the absence of further action by Congress.  If Congress does not take action, the reduction in the federal exemption amount could have a significant impact on the estates of high net worth individuals who have not planned accordingly.

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).

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 federal annual gift tax exclusion is increasing to $18,000 in 2024. You can make gifts of up to $18,000 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 $36,000 to each recipient. Annual gifts that do not exceed the $18,000 threshold do not count toward the current $13.61 million individual lifetime estate and gift tax exemption.

The Maryland individual estate tax exemption amount remains at $5 million for 2024 and is 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). Unlike federal law, Maryland does not impose a gift tax and therefore does not count the value of lifetime gifts against a person’s estate tax exemption.

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 estate. Under current law, the spousal elective share extends to the 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 2024. 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. Some relief is available to estates subject to both the inheritance tax and estate tax. The Maryland estate tax is reduced, dollar for dollar, by the amount of the inheritance tax due.

When a person domiciled in Maryland dies without a Last Will and Testament, Maryland’s intestate succession laws govern distribution of the decedent’s probate estate by defining who the decedent’s heirs are and the corresponding portion of the decedent’s probate estate each heir is entitled to receive.

Below is a summary of the newly enacted changes to Maryland’s intestate succession laws for decedent’s dying on or after October 1, 2023:

• If there is a surviving spouse of the decedent and:

• • Surviving adult children of the decedent who are not also children of the surviving spouse – The surviving spouse will receive $100,000 plus ½ of the remainder of the decedent’s probate estate and the surviving children will receive the other ½ of the remainder of the decedent’s probate estate.

• • All surviving adult children are children of both the decedent and the surviving spouse – The surviving spouse will receive 100% of the decedent’s probate estate.

• • No children of the decedent but surviving parents of the decedent – The surviving spouse will receive 100% of the decedent’s probate estate.

• If the decedent dies without a surviving spouse, and no descendants (children, grandchildren, etc.), parents, descendants of parents (brothers, sisters, nieces, nephews, etc.), grandparents, or descendants of grandparents (aunts, uncles, cousins, etc.) – The heirs next in line to inherit will be any stepchildren of the decedent.

• If the decedent was survived by a domestic partner, a surviving domestic partner in a registered partnership will be treated the same as a spouse in an intestate estate.  However, the surviving domestic partner does not have spousal elective share rights.  See below for more information on the new Domestic Partnership Registry.

Effective October 1, 2023, any two unmarried adults may become registered domestic partners by filing a Declaration of Domestic Partnership with the Register of Wills for the county in which the adults reside. Registration entitles the surviving registered domestic partner to certain benefits in an intestate estate and exempts the surviving registered domestic partner from inheritance tax. The new domestic partnership registration process serves as an addition to the already existing Affidavit of Domestic Partnership, which provides an exemption from the inheritance tax for jointly held real property that is the primary residence of the decedent and their domestic partner.

If it’s been a while since you’ve reviewed your current estate plan, or if you have questions about the information in this 2024 Annual Estate Planning Update, please give us a call. We’d be happy to meet with you at your convenience.