2025 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 2025, the lifetime federal estate and gift tax exemption is increasing to $13.99 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 “sunset” back to a drastically lower federal exemption amount could have a significant impact on the estates of high-net-worth individuals who have not planned accordingly.

Meanwhile, President Trump has proposed making the current high exemption amounts permanent or repealing the federal estate tax entirely. These plans remain unsolidified and require Congressional action to be implemented.

In light of these circumstances, we’ll be tracking developments at the federal level closely this year.

Currently, 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 state and federal levels, 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 estate tax exemption is currently set at $5 million per person for 2025. With that said, as a part of his fiscal 2026 budget proposal, Governor Wes Moore has proposed a major reduction of the estate tax exemption from $5 million to $2 million per person, effective July 1, 2025.  The proposal is still subject to legislative approval, but if enacted, it would significantly expand the number of estates subject to Maryland estate tax.

Governor Wes Moore’s fiscal 2026 budget also includes a proposal to eliminate Maryland’s inheritance tax entirely. Maryland is the only state that imposes both an estate tax and an inheritance tax. Under current law, Maryland collects a tax of ten percent (10%) on property passing from a decedent to distant relatives, such as nieces and nephews, and friends.  Property passing to close relatives, such as children, grandchildren and siblings, is exempt from the tax.

Keep an eye out for developments at the state level over the next several months.

Maryland does not impose a gift tax and therefore does not count the value of lifetime gifts against a person’s estate tax exemption.  For clients whose estates may exceed the Maryland exemption amount, lifetime gifting could be an effective means to reduce an estate below the exemption amount and avoid estate tax liability.

Maryland’s 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 life insurance, retirement accounts and assets in a revocable living trust).

Maryland law permits any two unmarried adults to become registered domestic partners by filing a Declaration of Domestic Partnership with the Register of Wills for the county in which the adults reside. When one domestic partner passes away, the registration entitles the surviving domestic partner to certain benefits in their partner’s intestate estate and exempts the surviving domestic partner from inheritance tax.

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.