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Estate Planning - NOT Estate TAX Planning


The recent doubling of the federal estate tax exemption under the Tax Cut and Jobs Act (TCJA) was just the latest in a series of increases over the past 20 years. The exemption is now over $11 million per person, rising from just $600k back in 1997. With the federal exemption set at such a high level, many people feel they don’t need to worry about “estate planning”. After all, if their “estate” is below that $11.18 million level ($22.36 million for married couples), they don’t have to worry about paying any estate tax, so why worry about planning?

What these people fail to realize is that estate planning is much more than just planning around the federal estate TAX.  There are many more important aspects to estate planning that everyone needs to consider. October 15th is the start of National Estate Planning Awareness Week so we thought now would be a great time to consider some of the other aspects of estate planning.

State Estate Tax
The first thing to keep in mind is that many states impose their own estate tax that could have a lower exemption level than the Federal estate tax. This means you could still be subject to estate taxes at the state level, even if you are well under the federal estate tax exemption. For example, in Maryland the exemption is $4 million in 2018 and will rise to $5 million in 2019, but it will not rise further to match the Federal level. Some states have even lower exemption levels so it’s important to understand the rules in your state of residence.

State Inheritance Tax
Did you know that in addition to the estate tax, some states, including Maryland, also have an inheritance tax? For Maryland residents, this is a separate 10% tax on property that passes to specific types of beneficiaries. Some of the beneficiaries that are excluded are a spouse, child, grandchild, parent, grandparent, sibling, among others. While this is a broad range of excluded beneficiaries, if you plan to leave money to a niece or nephew, they could be subject to this 10% tax. There are a number of exemptions to be aware of, including life insurance that’s payable directly to a beneficiary. However, some surprising items are included, like an IRA that lists a niece or nephew as the beneficiary. Here is some more information on the Maryland inheritance tax.

Start With a Will
It’s difficult to find something that causes more family strife than an inheritance. Money has a powerful effect on people and figuring out who gets what after someone dies can bring out the worst in people. The most important thing you can do for your family is to have a complete and recently updated will. Your will should outline exactly what happens to each and every one of your assets after you pass away. While you can’t please everyone, you don’t want there to be any question about your intentions. Remember, you won’t be around to settle any familial disputes so unless you revel in the prospect of your family members bickering over everything after you are gone, keep your will up to date!

Don’t Forget About Medical Directives
While having a will is important for your family after you die, it’s also important to think about what will happen if you become ill or incapacitated. While it’s not a pleasant topic to think about, not having a plan in advance can make an incredibly difficult situation even worse.

Beneficiary Designations Are Critical
Remember that many of your assets will pass directly according to the beneficiaries you designated on your account. These include things like your 401(k) plan, IRA’s, and insurance policies. When was the last time you checked the beneficiary designations on those accounts? It is critical that the beneficiaries are in line with your desires because they will be passed on according to that designation, regardless of what your intentions might have been.

Get Organized
Does your spouse or your kids know where to find all your important documents if something were to happen to you? While we never want to think about our own demise, sometimes we have to step back and think about that worst case scenario. The last thing you want to have happen is to add more stress to your grieving family members who can’t find your will or who don’t have any idea what investment accounts you own or where they are held. One of the most important steps in proper estate planning is simply getting organized and making things easier on your family.

Digital Assets are Becoming More Important
In today’s increasingly digital world, managing your electronic footprint is becoming more important. From usernames and passwords to social media accounts and websites, you need to carefully consider who you want to have access to your digital life after you pass away. There are tools available that can help with this. One example is using a password manager that lets you designate an emergency contact who will be able to access all your usernames and passwords if something happens to you.

As you can see from this list of topics, there is a lot more to estate planning than just the federal estate tax. While there are still many individuals who can implement planning strategies to help reduce estate taxes, there are many more who can benefit from some of the basics of estate planning. If you haven’t considered some of the items mentioned above, please reach out to us and we can help you get started!


-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.Please see Additional Disclosures more information.