In the latest Weekly Wright Report:
National Estate Planning Awareness Week: Estate Planning and Estate Taxes
The focus on the federal estate tax has largely died away, but will be revived as the year 2026 approaches. The estate tax is a tax that is applied to the value of a decedent’s assets at the time of his or her death. The federal exemption from the estate tax is currently set at 12.92 million per person. This figure doubles for a married couple. The estate of a single person with assets valued under 12.92 million dollars will pay no federal estate tax. An estate with assets in excess of 12.92 million dollars, will pay the federal government 40% on the value of assets above the exemption level. The law which established the current exemption level will terminate (usually referred to as “sunset”) on December 31, 2025. After that time, the exemption level will drop back to the exemption level that last existed in 2017, adjusted upward for inflation. Unless the law is extended, the exemption level will drop to a figure somewhere between 5 and 7 million dollars.
Twelve states and the District of Columbia impose an estate tax. Five states have an inheritance tax. Maryland appears to be the only state that imposes both an inheritance tax and an estate tax. In Maryland, the exemption from estate tax is 5 million dollars. The inheritance tax does not have an exemption amount but it applies only to assets passing to collateral heirs. These are people who are not closely related to the deceased, like nieces, nephews, cousins and friends. These individuals are subject to a 10% inheritance tax on the value of the property they receive from the deceased. The Maryland estate tax has a graduated rate similar to the brackets applied to income tax. The highest Maryland estate tax rate is 16%.
In addition to the exemption level, there are deductions that reduce the estate tax. Assets passing to a surviving spouse are not subject to estate tax. Similarly, assets passing to charitable organizations are not subject to estate tax.
For most individuals, estate tax planning is not a critical part of their overall estate plan due to the currently high exemption level. While this greatly reduces the complexity of estate planning, a carefully crafted estate plan is still crucial for efficiently passing assets to family, friends and charities after death.
The lawyers at Wright, Constable & Skeen, LLP are happy to assist you with preparing an appropriate estate plan tailored to your particular assets and family situation.