Estate Planning Update: It’s Time For Your Annual Review
February 2016
At this time each year, we like to remind our clients to take a look at their existing estate plans to evaluate whether any changes are needed. In general, we recommend that you undertake at least a cursory review of your plan on an annual basis. A more in-depth review is necessary if there’ve been changes in your personal or financial circumstances, or your goals for the distribution of assets, since your current estate plan was developed. Our clients who are business owners should regularly evaluate their succession plans as well.
Aside from personal and financial changes, developments in the federal and state estate planning and tax laws can also impact your estate plan. Below is a brief summary of some of the more significant aspects of Maryland and federal estate tax laws in 2016 that you should consider.
If you have any questions about these laws and how they might impact your current estate plan, or if it’s been a few years since you’ve reviewed your plan, please don’t hesitate to contact us to arrange an appointment so that we can review your current plan together.
Maryland Estate and Inheritance Tax
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- Maryland Exemption. Just a few years ago, the Maryland estate tax exemption was set at the fairly low threshold of $1 million. Fortunately, the impact of Maryland’s estate tax is waning. In 2014, Maryland adopted legislation to increase the Maryland estate tax exemption over several years. For estates of decedents dying in 2016, the exemption is $2 million. That amount will increase to $3 million in 2017, $4 million in 2018, and in 2019, it will match up with the federal estate tax exemption (expected to be as much as $5.9 million or more due to inflationary increases).
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- Marital Deduction. It’s important to keep in mind that property left to a surviving spouse, no matter what the amount, is totally exempt from state and federal estate taxes. However, if the estate of the surviving spouse is large, it could be subject to significant taxes in the absence of proper planning.
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- Inheritance Tax. Maryland’s ten percent (10%) inheritance tax remains unchanged for 2016. Property passing from a decedent to most relatives (including grandparents, parents, spouses, children, siblings, and stepchildren) is exempt from inheritance tax, but more distant relatives, such as nieces and nephews, are subject to the tax.
Federal Estate and Gift Tax Laws
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- Federal Exemption Amount. The per person lifetime exemption for estate, gift and GST taxes–indexed for inflation–will be roughly $5.45 million in 2016. Married couples with proper estate tax planning will be able to transfer nearly $11 million free of federal taxes.
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- Portability of Deceased Spouse’s Exemption. The unused portion of a deceased spouse’s exemption can be used by their surviving spouse, as long as a “portability” election is properly made following the death of the first spouse to pass.
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- Gift Taxes. Federal estate and gift taxes are “unified”–in other words, an individual can transfer up to $5.45 million through lifetime gifting or upon death, free from federal estate and gift tax. The annual gift tax exclusion amount is $14,000 for 2016–this is the maximum amount a person can give to another person this year without incurring any federal gift tax. Married couples can combine this exclusion and give gifts of up to $28,000 this year to an unlimited number of people free of federal tax. Further, annual gifts that do not exceed the $14,000 threshold do not count toward the $5.45 million lifetime exemption.