Do you have Sweetheart Wills?
Sweetheart Wills sound so romantic – I leave everything to my spouse, and my spouse leaves everything to me! But, as usual, the complexities of life creep in. If you have a Will that leaves everything to your spouse, you may not be taking advantage of your Maryland estate tax exemption.
Notice that I mention only the Maryland exemption. As you may or may not know, with the recent passage of the American Taxpayer Relief Act (ATRA), the federal estate tax exemption is now $5 million, indexed to inflation. With indexing, the total individual exemption amount for this year is $5.25 million for an individual, and double that for a couple (thanks to the relatively new concept of “portability” – a later topic of discussion). Most of us, fortunately (or unfortunately as the case may be), do not have to worry so much about having a taxable estate at the federal level.
But for those of us who live in Maryland or the District of Columbia (Virginians get a break here), there is still the state estate tax to worry about. The estate tax exemption in Maryland and DC is only $1 million and is unlikely to change in the near future. Because of the unlimited marital deduction, you may leave any amount to a U.S. citizen spouse without getting hit with either federal or state estate tax. The problem with leaving everything to your spouse, however, is that when your spouse inherits all of your assets, there is the potential that your spouse’s assets will exceed $1 million and will be subject to state estate tax upon his or her death. Considering that your gross estate for tax purposes includes not only traditional assets such as cash and investment accounts, but also your house, your retirement accounts and any life insurance proceeds, it is not as hard as you may think to cross over into the realm of a taxable estate in Maryland or DC.
One of the things that an estate planning attorney can do for you is to evaluate your current overall asset level, take a look at your family situation, and advise you as to whether or not you would benefit from some tax planning. Some simple steps taken now, such as including trusts in your estate plan to preserve your state exemption amount, can result in significant savings in estate taxes down the road. This can be done by setting up revocable living trusts if the need exists, or, can be accomplished through your Will at a more reasonable cost. The money spent to make sure this is done properly is well worth it considering the potential savings involved.
For more information about estate taxes, please contact us at (301) 840-8565. We do not charge for estate planning consultations; We only charge for completed documents, so please don’t hesitate to come see us.