Maryland Trusts & Estates Home > Practice Areas > Federal and Maryland Tax Planning
Federal and Maryland Tax Planning
At Sellers Johnson Law, we provide Maryland Tax Planning, including Federal and Maryland Estate Tax, Maryland Inheritance Tax, and Maryland Fiduciary Tax.
On January 1, 2013, Congress enacted the American Taxpayer Relief Act of 2012, which permanently eliminates and replaces the sun-setting provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001. Following is a summary of the new Law:
•· The new law maintains a $5,000,000.00 exemption, as indexed for inflation, for the federal estate tax, the generation-skipping transfer ("GST") tax, and the gift tax systems. The indexed exemption was $5,120,000.00 in 2012 and was reset to $5,250,000.00 for 2013. The exemption was reset to $5,340,000 for 2014.
•· The estate tax system and the gift tax system remain unified. This allows access to the full exemption to fund lifetime gifts, above and beyond gifts using the annual gift tax exclusion which is now $14,000 (as a result of indexing, that represents a $1,000.00 increase from the prior $13,000.00 annual gift tax exclusion). The exclusion remained $14,000 for 2014. The annual exclusion can be doubled if both spouses join in.
•· The maximum estate, gift and GST tax rate was set at 40% (as opposed to the prior 35% maximum rate and the scheduled increase in that rate to 55%).
•· "Portability" is still available. Specifically, the unused estate tax exemption of a deceased spouse may be used by the surviving spouse, provided certain rules are complied with.
To the extent that you have never done any estate planning, now is a good time to establish a plan especially since there is more certainty as to how estate plans will actually operate now that the sunset provision of the previous federal estate tax law has been eliminated permanently.
For those who have an existing estate plan, it is imperative that you review your current estate plan to make sure that it still meets your goals in light of the new federal estate tax law. Many estate plans provide for distributions and the funding of trusts based on formula clauses, and it is important to review the ramifications of such formula clauses in light of the new estate tax law.
The Maryland estate tax law remains decoupled from the federal estate tax system, and the Maryland exemption is capped at $1,000,000.00. Although under the new federal estate tax law, an estate with $5.34 Million or less in assets will escape federal estate tax, such estate may be exposed to up to $391,600.00 in Maryland estate and inheritance taxes, with out proper planning. Your estate planning documents should be reviewed for Maryland estate tax planning strategies.
