SUMMARY OF APPLICABLE ESTATE TAX CONSIDERATIONS
Federal Estate Tax: Congress passed the Tax Cuts and Jobs Act effective as of January 1, 2018, that enables individuals to pass $10 million tax-free during their lifetimes or at death. This exclusion amount is adjusted annually for inflation. Unless new legislation is passed, on January 1, 2026, the federal estate tax exemption amount will decrease to $5 million (with adjustments for inflation). The highest federal estate tax rate for transfers in excess of the exclusion amount is forty percent (40%).
|2020-2025||$10 million plus adjustments for inflation TBD|
Federal Estate Tax Exemptions: At death, a person can leave property up to the exclusion amount without having to pay any federal estate taxes on that property. In addition, spouses can leave an unlimited amount of property to each other at death without incurring tax consequences as long as the surviving spouse is a U.S. citizen. Furthermore, all gifts to tax-exempt charities are exempt from estate taxes. Finally, the taxable estate does not include expenses and debts paid by the estate.
Federal Gift Tax: Individuals are currently allowed to transfer up to $15,000 per beneficiary per year without incurring any gift tax consequences. Individuals are also allowed to gift an unlimited amount to a U.S. citizen spouse and charitable organizations. Furthermore, an individual can give up to the lifetime gift tax exclusion amount (which is equal to the federal estate tax exclusion amount) throughout his or her lifetime in excess of the annual exemption amount to non-spouse beneficiaries without having to pay gift taxes. However, these gifts reduce the amount of federal estate tax exclusion amount that is available at death. Once the lifetime gift exemption amount is exceeded, a person must pay gift tax at the same rate as the estate tax rate.
Maryland Estate Tax: As of January 1, 2019, the exclusion amount for a decedent who owned property in Maryland is $5 million without any adjustment for inflation. Therefore, if assets greater than that amount are transferred after death to a non-spouse, the estate will be required to pay Maryland estate tax (even if no federal estate tax is owed). The maximum estate tax rate in Maryland is sixteen percent (16%).
Maryland Inheritance Tax: Maryland imposes an inheritance tax of ten percent (10%) on property that passes at death to someone other than a spouse, parent, grandparent, sibling, child, descendant of a child, spouse of a child, or a corporation whose shareholders are within the exempt class. Inheritance tax is deducted from the estate tax.
Income Tax: The decedent’s estate will be required to file an income tax return if the estate earned income during the estate administration period that exceeds a certain limit. The personal representative will be required to pay personal income tax for any commission awarded for serving in this capacity.
Portability: Federal and Maryland laws provide for “portability” of unused estate tax exclusion amounts to a surviving spouse if the surviving spouse elects it on a timely filed estate tax return. This enables a surviving spouse to add the deceased spouse’s unused estate tax exemption amount to his or her estate tax exemption amount as long as the surviving spouse does not remarry.
U.S. TREASURY CIRCULAR 230 NOTICE: Any tax advice contained herein was not intended to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or by any other applicable tax authority. This disclosure is included to assure compliance with new standards of professional practice.
Please contact the Law Office of Jill A. Snyder, LLC at 410-864-8788
to discuss strategies to reduce or eliminate your estate tax liability.