Estate planning is one of the best ways that you can help to plan for your loved one's future, but you have a lot of things to think about, such as tax considerations. You have to understand how various factors might impact what your beneficiaries have to cover after you pass away.
Maryland has both an estate tax and an inheritance tax. This can make a difference to some individuals who have a high net worth. However, it might benefit anyone creating an estate plan to understand how the law can impact the outcome of the estate.
What are estate and gift taxes?
An estate tax is paid when property exchanges hands after the owner passes away. If the owner gives the property away while they are still alive, there might be a gift tax. These taxes are paid by the owner of the estate.
Even though you might be concerned about the estate tax, you probably shouldn't fret. As of 2020, the lifetime exemption for the tax is $11.58 million, which means that your estate would have to have a value over that amount before you'd pay the tax. That exemption is per individual, so married couples would have double that amount to amass prior to being levied an estate tax.
What is an inheritance tax?
The inheritance tax is paid by the heir. There is no federal inheritance tax, but there is a state tax for residents of Maryland. Not everyone will have to pay this tax, so it behooves people expecting an inheritance to try to determine whether they will have to come out of pocket. In Maryland, higher asset estates can face having to pay an estate tax, and then, the heirs might be liable for an inheritance tax. This means that the assets in specific cases can be taxed twice.
If you are creating your estate plan, make sure that you take all applicable points into consideration. This enables your loved ones to receive the security you hoped your estate plan would provide for them. Since laws can change regarding taxes and gifts, you have to ensure that you are up to date on the factors that impact your situation.