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.

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

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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.

1)      Marriage. Marriage can automatically give each spouse some rights in each other’s property.  However, marriage does not automatically change your will or trust to provide for the new spouse.  It is important to examine your estate plan in light of the new situation and your mutual and separate goals.

2)      Divorce. Divorce is particularly disruptive to an estate plan.  Goals which you had before, such as providing for the now ex-spouse probably have to be changed.

3)      Birth or Adoption of a Child. The addition of a new family member can radically alter your estate plan.

4)      Illness. If you or one of your family members becomes seriously ill, you may want to consider changing your estate plan to reflect their increased needs.  For example, if a loved one now has special needs, you can leave assets in a trust that will not disqualify him or her from receiving government benefits.

5)      Change in Feelings about Family and Friends. With the passage of time, you learn more about yourself and others.  For example, you may decide your brother John, who lost everything in Enron and WorldCom, may not be the best selection to manage your assets.

6)      Change in Tax Laws. As we all know, Congress rarely leaves tax law alone for long.  Changes in tax law can mean your estate plan no longer accomplishes its goals.

7)      Change in Non-Tax Laws. Periodically, state legislatures change substantive non-tax laws.  These laws may affect who gets your property or how your trust may be managed.

8)      Inheritance. If you or your spouse have received or expect to receive a significant inheritance, there may be new opportunities to reduce taxes or provide creditor protection.

9)      Change in Assets. A significant change in the nature or extent of your assets may give rise to different estate planning options.  For example, the acquisition of a farm or business may raise issues of succession planning and discounted gifting.

10)   Change in Residence. While estate planning documents typically are valid from one jurisdiction to another, each state has its own peculiarities.

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