Can You Avoid Estate Taxes?

There are Maryland estate taxes if the decedent’s assets exceed $1 million. (There is no Federal estate tax unless the amount is in excess of $5 million.) The most straightforward way to avoid some, if not all, of this tax burden is through the use of trusts. For example, if an individual has an estate valued at more than $1 million, he can choose to place up to $1 million into a trust for the benefit of his spouse or others, while insuring that the trust principal, at his spouse’s death, goes to their children without being subject to taxation. That trust is known as a credit by-pass trust. A second type of commonly used trust in Maryland is what is known as a “QTIP” trust (the acronym stands for legal gobbledygook!) which allows an individual with more than $1 million in assets to place the excess into a trust which has the effect of deferring the taxation until the second spouse dies.

Please call me if you have any questions about these trusts and whether they would be appropriate for you.

Current Death Taxes – Federal and Maryland

Under current law, the Federal estate tax exemption is $5 million. While there may be pressure in Congress in 2013 to lower this exemption amount, it is unlikely to be reduced significantly. In Maryland, the estate tax exemption is $1 million.

Maryland has no inheritance tax for those directly in the family line (for example, parents, children or grandchildren). The tax rate is 10% for all other beneficiaries with the exception of charities.