Proposed Maryland Estate Tax Changes Do Not Eliminate the Need for Careful Estate Planning
Benjamin Franklin famously stated that nothing is certain except death and taxes. At the time, he probably had no idea that future governments would enact laws linking these two events — today, our heirs are taxed just because we die. Particularly in Maryland, a state that imposes estate and inheritance taxes, our loved ones could suffer serious financial obligations and distress that we did not intend for them to face.
Unless you believe that state and federal governments need your hard-earned money more than your loved ones, you have a moral duty to take all appropriate action to avoid undue taxation.
A well-constructed estate plan can keep taxes under control
Under current law, Maryland estate taxes can kick in for estates valued at $1 million or more, compared with federal estate tax exemption for property valued at a minimum of $5 million, albeit charged at a higher rate. As of January 2014, the Maryland legislature is considering two bills to raise the state estate tax exemption to $4 million. One bill takes four years to reach the new exemption levels, while the other imposes the full exemption immediately. These bills may be steps in the right direction, but they do not eliminate real concerns for anyone who intends to leave a family farm or business to their loved ones as a means for future financial security.
Depending on the value and specific circumstances of your estate, you may be able to reduce or even eliminate certain state and federal estate taxes with help from an attorney. Some possibilities include the following:
- Establishing bypass trusts that prevent the direct transfer of estate values at death
- Setting up a Qualified Terminable Interest Property to avoid estate taxes on a surviving spouse, which still subjects future heirs to state estate taxes while protecting the federal estate tax exemption
- Splitting up higher-value estates into smaller units within multiple trusts
These and other strategic estate planning options require extensive knowledge of tax laws and pending legislation. Consult a lawyer in Charles County to learn more.