A Will, formally known as a “Last Will and Testament,” is probably the most well-known estate planning mechanism. Most people know that this document memorializes an individual’s wishes regarding the distribution of property after his or her death, but this document serves other important functions, such as identifying the person who will manage the distribution of the estate, (the “Personal Representative”), and directing how any estate or inheritance taxes should be paid.

If someone dies without a Will, his or her estate is distributed according to the laws of intestacy, which are rules created by the legislature.

It may seem reasonable to think: “I don’t need a Will, everything will automatically go to my kids, right…?”, but that is not always the case under Maryland’s intestacy laws.

By consulting with an experienced estate-planning attorney and executing a Will specifically tailored to achieve your wishes, you will eliminate any uncertainty as to the distribution of your estate and minimize the payment of any taxes and fees.

Trusts can be helpful planning tools. When prepared and implemented properly, a trust can minimize tax exposure, permit greater control over the distribution of assets, and help preserve assets and eligibility for long-term care government assistance.

Traditionally, trusts were often used to keep assets out of probate in order to avoid the imposition of estate tax. However, as of 2018, the Federal Estate Tax only applies to estates with assets totaling over 11.2 million (22.4 million for spouses). In addition, Maryland’s estate tax threshold is set to align with the federal amount by 2019. For this reason, establishing a trust solely to avoid estate taxes doesn’t make sense for the majority of people.

However, as noted above, establishing a Trust can make sense for a variety of other reasons. An experienced planning attorney will be able to measure your assets and objectives against current laws and regulations to determine if a Trust makes sense for you.

Retirement accounts like 401(k)s and IRAs can grow over the years without the imposition of tax on any income generated. 

However, these accounts are far from “tax free.” Instead of being imposed over the lifetime of the account, the taxes are deferred until the account’s funds are accessed or distributed. Without planning ahead for the distribution of a retirement account, those who inherit the funds can be subject to the imposition of significant amounts of income tax at one time.

By taking certain steps, such as naming a designated beneficiary to receive the proceeds of the account at the account holder’s death, you can create a level of flexibility in the manner and timing of distributions, allowing for the continued deferral of tax on the account’s assets — preventing the imposition of a heavy tax burden on its recipient(s).