There are three taxes your family may have to face in the State of Maryland.  There is a federal estate tax, a Maryland estate tax, and a state inheritance tax.  Maryland does have a state inheritance tax, but it does not apply to everyone.  It does not apply if you leave your assets to your spouse, your children, your grand-children, parents or grandparents, or your brothers or sisters.  Anyone else, nieces, nephews, cousins, friends, or domestic partners, the State of Maryland does tax with an inheritance tax of 10%.  And that is 10% on the first dollar.  So, if you leave a niece $60,000, she will have to pay $6,000 in inheritance tax.

Then, we have the federal estate tax and the Maryland estate tax.  The way they work is you add up all of your assets: your real estate (fair market value), your retirement accounts (IRAs, 401Ks, TSPs), your savings accounts, your stock, the death value of your life insurance and you come up with your gross estate.  Then, you subtract the debt: your mortgages, credit card bills, loans, and your come up with your net estate.  Right now, if your net estate is less than one million dollars, there is no tax.  Assets over one million dollars are taxed by the State of Maryland at approximately 16%.  The State of Maryland used to follow the federal exclusion.  Because the federal government has increased their exclusion, the State of Maryland capped their tax on assets over one million dollars ($1,000,000).

Finally we have the federal exclusion and right now it is at five million dollars ($5,000,000).  So anything under $5 million will not be taxed by the federal government, but anything over that amount will be taxed at 35%.  The federal exclusion of $5 million ends December 31, 2012 and reverts back to an exclusion of $1 million with a 55% rate as of January 1, 2013 unless Congress changes the law in the meantime.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

“Three Taxes at Death” by Attorney Nicole Livingston

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

Don’t forget to tune in today to WNAV Radio on 1430 AM or 99.9 FM @ 3:50pm to listen to Your Estate Matters with Attorney Nicole Livingston.  The topic is Three Taxes at Death.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

Another year

And we’re still here

As we always plan to be

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In preserving prosperity

Should you want to establish

A Will or a Trust

Without hesitation

The answer is us!

In Trust Administration

We minimize taxes

To those who are aging

Our guidance relaxes

We’re experts at pre-nups;

And post-nups, it’s true

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We can position for you.

As your estate planning expert

We give peace of mind

Our team stands to serve you

Through the passage of time

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes. “  -Benjamin Franklin in a letter to Jean-Baptiste Leroy (13 November 1789)

While decades have passed, some things have not changed.  Now more than ever it is important that you have done all that you can to protect your home and assets.  Markets are unpredictable but taxes are inevitable.  A comprehensive estate plan can put your mind at ease and give assurance to those you care about.  It says “I did all that I could to give you security for the future – because you are special to me.”

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

When you put your estate planning in place you took some valuable steps to protect your family from guardianship, probate and/or estate taxes.  The current system of estate taxation in Maryland taxes estates in excess of $1,000,000 for a single person.  For a married couple with a living trust, $2,000,000 would be exempt.

Do you want to take additional steps to reduce or eliminate estate taxes?  Here are a couple of examples:

Gifting. You can transfer $13,000 per year to any person.  It is very simple and very easy.  If you would like to gift more than $13,000, then you will need to file a gift tax return and the amount in excess of the $13,000 will reduce your Federal estate tax exemption, currently $5,000,000.  However, since Maryland does not have a gift tax, your Maryland estate tax exemption will remain at $1,000,000.  There are also exemptions for gifts to pay educational and medical expenses.

Irrevocable Life Insurance Trusts (also commonly referred to as an ILIT “eye lit”).  You can transfer your life insurance policies to an irrevocable trust and exempt the proceeds from your estate.  You may also want to buy a life insurance policy and place it in the ILIT to create a source of cash to pay final expenses and estate taxes upon your death.  If you purchase the policy and you do not put it in an ILIT, then you are increasing your estate for greater taxation at your death.

Qualified Personal Residence Trust (also known as a QPRT “queue pert”).  This irrevocable trust allows you to place your home and/or a second home in a trust and exempt the value of your home from your estate.

Grantor Retained Annuity Trust (also known as a GRAT).  This is also an irrevocable trust that can be used to remove future appreciation of an asset from your taxable estate.  You would gift an asset or assets to the trust, receive a stream of income for a period of time, and at the end of the term of the trust the principal is distributed to the beneficiaries of the trust, most likely your children or grandchildren.  The success of the GRAT depends on the performance of the asset(s) gifted to the GRAT.

Family Limited Liability Company. This tax reduction strategy allows you to gift small portions of an asset to family members without having to break apart the asset.  Real estate or businesses are good examples of the type of asset best suited for a Family Limited Liability Company.

As with all tax reducing strategies, there are many technical issues that you will want to be aware of before implementing one of these plans.  It is important that you meet with a qualified estate planning attorney to discuss which options are best for you and your family.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

By: Stephen C. Hartnett, J.D., LL.M., Associate Director of Education, American Academy of Estate Planning Attorneys

After much wrangling and politics, on December 17^th, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, otherwise known as “TRA 2010.” The law did many things:

• Temporarily extended the Bush-era income tax cuts,
• Temporarily extended the program extending unemployment insurance benefits,
• Temporarily cut employee’s FICA tax by 2%, and
• Temporarily provided estate tax relief.

From an estate planning perspective, the new law set the amount that could pass without an estate tax at $5 million per person for 2010-2012. However, the new law is temporary and will expire after 2012. In 2013, the amount that can be passed free from tax will go back down to $1 million per person. Thus, unless the law is changed again between now and then, someone dying in 2013 would only be able to pass $1 million without an estate tax.

As before, you can use a portion of that exclusion to make lifetime gifts, but then it would not be available at death. In 2010, you can use up to $1 million of your exclusion during your lifetime. In 2011 and 2012, you can use your whole $5 million exclusion during life. Of course, then you would not have any available at death.

Congress also introduced a new “portability” provision. This is where one spouse can add their deceased spouse’s remaining estate tax exclusion to their own exclusion to shelter more from taxes. This portability provision, also known as the “Deceased Spousal Unused Exclusion Amount,” can be used to shelter the assets of the surviving spouse. While intriguing on the surface, under current law this portability tax benefit only happens if both spouses die in 2011 or 2012. If either spouse hangs on until 2013 or beyond, there is no portability option available.

In addition, the new law reduces the top estate and gift tax rate to 35% in 2010-2012. However, a top rate of 55% returns in 2013 and thereafter.

So, what’s the gist of the new law? Prior to TRA 2010 we were facing a return to the $1 million estate tax exclusion on January 1, 2011. Now, we are still facing a return to the $1 million estate tax exclusion; it’s just put off for two years now—to January 1, 2013. The bottom line is that TRA 2010 is temporary. In two years, it will disappear as though it had never existed.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.