ESTATE TAX PLANNING – Who Needs It?

Very few Marylanders need to worry about Estate Tax when creating or revising their estate plans.  Effective January 1, 2019, only married couples with assets in excess of $10 Million and individuals with assets greater than $5 Million are subject to the tax.

The Federal Estate Tax exemption for 2019 is $11.4 Million per individual ($22.8 Million for a married couple).  The Federal exemption is and has been portable between spouses since 2010 – i.e., a surviving spouse may add a predeceased spouse’s unused exemption to his/her own without complex planning.  The exemption increased drastically in 2010 from $3.5 Million to $5 Million and again in 2018 from $5.49 Million to $11.18 Million.  The Federal exemption will continue to increase for inflation until at least 2026 when, absent legislative action, the exemption is scheduled to “sunset” and revert to roughly $6 Million per person (the pre-2018 exemption of $5.49 Million plus subsequent inflation adjustments).

The most significant recent change for most Marylanders relates to the Maryland Estate Tax.  On January 1, 2019, the Maryland Estate Tax exemption increased from $4 Million to $5 Million per person.  And for the first time, the Maryland exemption is portable between spouses, so married couples can utilize a combined exemption of $10 Million without complicated planning.  Maryland Estate Tax law evolved more slowly than the Federal law.  In fact, the Maryland exemption was only $1 Million until 2015.  Then, the legislature enacted a series of phased-in increases that were scheduled to unify the Maryland exemption and the Federal exemption in 2019.  However, when Congress unexpectedly doubled the Federal exemption in 2018, the Maryland legislature responded by capping the Maryland exemption at $5 Million with no future inflation adjustments.  Fortunately, they also saw fit to enact portability to offer some congruity between the Federal and state systems.

As a result of these recent changes in the law, many Marylanders who previously engaged in complicated estate tax planning can now benefit from simpler plans.  Planning that was prudent under the prior tax regimes might now be ineffective or even harmful.  Contact us to discuss your plan and determine whether simplification is appropriate for you.