What You Need to Know About Taxes & Estate Planning

When making your estate plan, you want to be aware of the various taxes that come into play in relation to your estate. Depending on your assets, you may need to do tax planning. While working with an estate planning attorney can help you navigate tax issues, having a basic understanding of the different taxes out there can help ease the process.

One significant tax to consider is the estate tax. This is a tax on the right to transfer your property at your death. The federal estate tax applies to assets of estates whose value is over the $13.61 million exemption amount per individual ($27.22 million per married couple) in 2024. The maximum federal estate tax rate is 40%. While the federal exemption amount is quite high right now, it is set to sunset at the end of 2025, at which point it will go down to $5 million per individual, adjusted for inflation.

In addition to the federal estate tax, many states have their own estate tax on estates of their residents, as well as property owned in the state by non-residents. The District of Columbia has an estate tax on assets of an estate that exceed the $4.7 million exemption amount per individual for 2024, which is adjusted annually for inflation. The D.C. estate tax rate is on a scale that goes up to a maximum of 16%. Maryland has an estate tax on assets of estates that exceed the $5 million exemption amount per individual. This amount is not adjusted for inflation each year. Maryland’s maximum estate tax rate is also 16%. Virginia does not have an estate tax.

Assets that are counted in one’s gross estate for estate tax purposes include both probate and non-probate assets, which includes assets in certain types of trusts, checking accounts, saving accounts, assets with beneficiary designations (like retirement plans), real estate (including jointly owned property), tangible personal property, business interests, brokerage accounts, and life insurance.

In addition to estate taxes, some states also have an inheritance tax, which is a tax on the right to receive a gift. The District of Columbia and Virginia do not have an inheritance tax. But Maryland is one of the few states that does have an inheritance tax. Though, assets going to certain recipients are exempt from the inheritance tax in Maryland. Exempt recipients include spouses, children, spouses of children, parents, grandchildren, siblings, stepchildren, and stepparents. Estate assets going to recipients not in these categories would be subject to a 10% inheritance tax.

Even if the value of your estate is above the federal or state exemption amounts, federal and state tax laws have provisions that can help you reduce the tax burden on your estate. An estate planning attorney can help you build a plan that preserves your legacy and helps you provide for your family. If you would like to incorporate tax planning into your estate plan, book a consultation. I would love to work with you to create a comprehensive plan to help provide for your family’s future.