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Wills and Estates Blog

Blended Families: The Not-So-Simple Estate Plan

Tuesday, April 03, 2018

Blended families, or families that consist of a couple and their children from this and/or previous relationships, may not realize the estate plan they currently have in place doesn’t fit their needs. It is common that blended families will arrange their finances as if their estate is your average estate plan when, in fact, for many blended families that is not the case.

For blended families, we must consider the balance of both the spouse and the children as opposed to your usual estate plan where you are only considering the present needs of your spouse. For example, for your average estate plan a spouse may choose to give all of their assets to their surviving spouse and in the event the surviving spouse had predeceased them then the assets go to the children. Using this same example, if you are a blended family, you could be disinheriting your children. Only in the event the surviving spouse has predeceased do your children receive an inheritance. If the surviving spouse is alive then they receive the inheritance and upon their death their inheritance passes to who they have chosen in their own estate planning documents—which may not include your children.

Also considering your incapacitation, who is the right person or persons to handle your financial affairs and your medical decisions? Are you supposed to put your spouse’s feelings and wishes before your children or vice versa? These are difficult questions that need to be addressed when considering a blended family estate plan. These questions can be answered using various estate planning tools. In considering the best estate plan for a blended family you must consider all of your options.

Last Will and Testament/ Revocable Living Trust

Whether you are a blended family or not, your estate plan can include a Last Will and Testament or a Revocable Living Trust. Regardless of the type of document, in a blended family your estate plan will attempt to balance the competing interests between your spouse and your children. Both have an interest in your assets and both can be at odds should you pass away without putting certain mechanisms in place. For example, if you have real property that you purchased prior to your marriage, do you want your children to receive an inheritance of that real property? What if you want your spouse to continue to reside in the real property after you pass away? These are all practical considerations of a blended family estate plan.

Whether it is a Last Will and Testament or a Revocable Living Trust, who will you choose to ensure those assets are transferred to the people you choose? To the extent that you chose to have a Trust that provides monies to your spouse until he or she passes and then the remaining assets to be divided amongst your children there can also be a conflict. Especially if you choose for your spouse to be the Trustee of the Trust. This means your Spouse will have sole control of the assets when you pass away, allowing them to spend the Trust assets lavishly and unfettered. Again, this can place your spouse and your children at odds because they both have competing interests. Consulting with an estate planning attorney can provide options to ensure your desired goal is met whether it be only providing for your spouse or it be ensuring your spouse is taken care of while also ensuring you still have assets left to give to your children.

Title of Assets

Let’s also consider that you may have joint assets with your spouse. If that is the case, there is a chance that it won’t matter what you put into a Last Will and Testament or Trust. If your assets are titled jointly with your spouse, your assets may automatically pass to your spouse as the surviving joint owner of those assets. As such, the estate plan you think you have in place may not achieve the goal you desire.When setting up your estate plan it is imperative that you also consider the assets you currently have and how they are titled to address any potential for the assets not to pass through your Last Will and Testament or Trust. An experienced estate planning attorney should review the titling of your assets when advising you of your estate planning options.

Power of Attorney and Advance Directive Agent(s)

In planning for incapacitation, many conflicts arise in blended families in the division of authority or responsibility. In any marriage it can be expected that you would wish for your spouse to make health and financial decisions in the event you cannot. However, what if your spouse and your children do not get along? Some factors to consider include how long you have been married to your spouse and the relationship between your spouse and your children when deciding who you will name as your Agent to make those decisions. Again, if you are the glue that holds the family together it can be problematic if you become incapacitated. Thus, it is best to provide clear instructions and consulting with an attorney can provide options to suit your needs.

Premarital Agreements

Premarital Agreements can be essential to any blended family estate plan. In a Premarital Agreement, both spouses are upfront about the division of their assets in the event of death. For couples that have Premarital Agreements in place, it is imperative that should they wish to change any aspect of the division of assets that are mentioned in the Premarital Agreement that any change be done by amending that Agreement. Your Last Will and Testament may not override your Premarital Agreement if there is a conflict between the two documents. For example,if you provide in your Premarital Agreement that you spouse has the right to purchase the real property at less than fair market value and you include in your Last Will and Testament that your spouse has to purchase the real property for fair market value those clauses are conflicting. Such a change would require an amendment of your Premarital Agreement should you wish for your that provision in your Last Will and Testament to be upheld. Any document that you currently have place that discusses the disposition of your assets should be reviewed by your estate planning attorney when advising you of your estate planning options.

Beneficiary Designations

Most divorcees are primarily concerned with ensuring they have updated their Last Will and Testament or Trust to take out any clauses referencing their ex-spouse, but fail to change their beneficiary designations. Many spouses assume that their Last Will and Testament or Trust will trump all other documents. However, that is not the case when it comes to beneficiary designations. If you do not change your beneficiary designation to remove your former spouse and name a new beneficiary, that beneficiary designation will trump any other estate planning document for that particular asset. In essence, your former spouse could still inherit from you even if they are not named in your Last Will and Testament or Trust. When consulting with an experienced estate planning attorney it is imperative you provide them with your asset information, including your beneficiary designations.

Blended families should consider consulting with an experienced attorney to ensure they are aware of all of their estate planning options. Should you wish to receive free initial consultation please contact Nicole A. Slaughter, Esq. at 301-670-7030.

Owning A Joint Checking Account With Your Child: A Road to Responsibility or A Road to Disaster?

Thursday, September 22, 2016

It is imperative that you weigh the pros and cons before opening a joint account with your child. Particularly, you must analyze your situation and your reasons for doing so. You will find that for many of these reasons there may be other options that do not change ownership but still carry out your goals and wishes.

Pros of Having a Joint Checking Account

1. Convenience

Your child can assist you with paying bills and looking out for your finances should you need assistance. In addition, for parents with a minor child, a joint account allows you to closely monitor your child’s spending and teach them how to manage finances.

2. Avoid probate

For many, the primary concern is having money that is readily available after death. Probate delays the ability to access your account immediately. However, the accounts could be made Transferable on Death or Paid on Death, which means that the account will automatically be transferred to the named beneficiary or paid to the named beneficiary. This is an attractive alternative for parents who have more than one child because the funds will be divided amongst all of your children without any legal delay of the probate administration process.

3. Build Trust

Having a joint account with your child can help build trust. It can give you both ease in knowing the other person is responsible with managing money.

Cons of Having a Joint Checking Account

1. Unfettered Access

As a joint owner, your child can withdraw your entire account balance at any time, for his own use, and he is not required to pay it back (at least without a court order). The only time you should ever open a joint account with someone is when you have absolute trust that they won’t take advantage of you. An irresponsible child could just wait until you make a big deposit and withdraw all of the money and close the account.

2. Account is Subject to Creditors

When you add your child to your bank account, the money in the account is considered an asset of you both. Thus, you are at risk of taking on your child’s personal liabilities. For instance, your child may have issues with a creditor and a judgment may be levied against him or your child files bankruptcy, now the joint account could be garnished or subject to scrutiny.

3. Gift Tax Issues

When a joint account is held with someone other than a spouse, there is a risk that you may be subject to gift tax. According to the IRS, you can give up to $14,000, per person, per year, to a person (other than your spouse) without having to file a gift tax return. Therefore, if you open a joint account with your child and your child withdraws money for his own benefit, you have made a gift to that child for the amount withdrawn that is subject to the filing of a gift tax return.

4. Spouse’s Access

If you and your child are injured and you are both left disabled but your child’s spouse has power of attorney, then your son-in-law or daughter-in-law now has access and control to the joint account. In addition, if your child is separated from his spouse, his spouse is now entitled to a portion of this jointly held bank account when their assets are divided up during the divorce.

5. Estate Implications

If your child is a joint owner of this account and it was your intention to leave the money in this account to all of your children equally when you pass away, your wish will not be followed. The title of the account triumphs your Last Will and Testament. If the account is held jointly with rights of survivorship, the funds in this account will pass directly to the surviving joint owner—your one child, not equally amongst all of your children.

6. Sibling Rivalry

If you have more than one child, the addition of one child as a joint owner on your bank account may cause the other child or children to feel slighted and elder financial abuse could be alleged.

For many of the pros of opening a joint account with your child, an alternative exists that far outweighs these pros. Your alternative could be to give your child Durable Power of Attorney. This gives them legal authority to act on your behalf. More importantly, the account remains with you and if your child abuses their authority, they can be held accountable. 

Are You Ready for ABLE?

Thursday, September 22, 2016

As you may have heard, Congress enacted the Candy Machine 100 Dollar Bills Achieving a Better Life Experience Act of 2014 (the “ABLE Act”) on December 19, 2014. Many have deemed this a monumental step toward the betterment of the lives of individuals faced with mental and/or physical disabilities. While many experts would agree this piece of legislation is several years too late, Congress’ decision to move this legislation forward is a huge victory for those families that must deal with physical and mental disabilities of their loved ones on a daily basis.

Overview of the ABLE Act

The purpose behind this Act is two-fold: (1) assist and provide families and individuals with disabilities certain private savings funds designed to support health, independence, and quality of life; and (2) provide secure funds that are designed to supplement, but not supplant, benefits provided through private insurance, Supplemental Security Income (SSI) and Medicaid, the beneficiary’s employment, and other sources of income.

People that have a disability tend to depend on a multitude of public benefits for assistance with health care, food, housing, education etc. To maintain eligibility for these public benefits, certain resource and income thresholds must be met. Generally, an individual cannot have cash savings, retirement funds, etc. in excess of $2,000. This maximum amount is very small when compared to the additional costs of living that are not covered by governmental programs.

Prior to the enactment of the ABLE Act, generally, the only means of assisting disabled individuals was through the use of Special Needs Trusts (Special Needs Trust). For many families, the complexities and costs associated with creating and administering a Special Needs Trust might seem to outweigh the benefit of using a Special Needs Trust. The ABLE Act provides a new tool to allow families to provide a better quality of life for their loved one.

An individual with a disability may now continue to qualify for public benefits while owning assets held in an ABLE account.

These funds held in an ABLE Account do not have any of the restrictions commonly placed on assets held in trusts (i.e. the funds cannot be used to pay for housing or food). Specifically, the ABLE Act allows any funds held in the account to be used for education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, and expenses for oversight and monitoring, funeral and burial expenses.

An ABLE account is disregarded for eligibility determination purposes for means-tested federal programs. However, individuals receiving SSI will have their benefits reduced/suspended for distributions attributable to housing expenses. Also, if the account balance exceeds $100,000, the SSI payments will be suspended for the period in which the assets exceed the threshold. However, an account with assets in excess of $100,000 does not suspend or affect Medicaid eligibility of such person.

Requirements for Establishing an ABLE Account

To qualify for the ABLE Account program, the individual must have “significant disabilities” that began before the individual’s 26th birthday. If the person meets this age requirement and is already receiving government benefits (SSI and/or SSDI) he or she is automatically eligible to establish an ABLE Account. (Disability Evaluation) Even if the individual is not receiving SSI or SSDI, he or she may be able to qualify for an ABLE Account through a certification process if the SSI criteria regarding significant functional limitations are met.

The age requirement only applies to the onset date of the disability, so those individuals that are over 26 may still qualify for an ABLE Account so long as the onset date of the disability was prior to the individual’s 26th birthday.

When Can an ABLE Account be Established?

Even though Congress passed the ABLE Act, it will be several months before ABLE Accounts are fully functional. Congress has instructed the Department of the Treasury to create regulations specific to ABLE Accounts to make sure proper procedures and oversight is in place. Once these regulations are provided, the states will then have the ability to establish ABLE Accounts and ensure the accounts are in compliance with the governing regulations.

Limitations on the ABLE Accounts

By statute, ABLE Accounts are a type 529 Plan. The statutorily created 529 College Savings Plans (see for information on Maryland specific 529 Plans) are established by each state in accordance with federal mandates. Just like the traditional 529 Plans, states most likely will take a similar approach in establishing ABLE Accounts. We can expect that states will place limits on the maximum account balances and will place limits on annual contributions to the accounts. For instance, several states have set maximum 529 Plan account balances at around $300,000 per plan. The state also may limit the Annual contribution limit, generally this limit is set in accordance with the annual Gift Tax exemption (currently $14,000). Thus an individual could make a maximum contribution to the 529 Plan of $14,000. Any contribution over the $14,000 limit may disqualify the 529 Plan and create potential negative tax consequences.

Specific to ABLE Accounts, this “new” 529 Plan will also include limits discussed in the overview section to maintain the account as a disregarded asset.

Unfortunately, any funds remaining in an ABLE account after the beneficiary dies must first be paid back to Medicaid for all services provided during the individual’s lifetime prior to distribution of the funds to others. After Medicaid expenses are satisfied, any remaining funds would then be distributed by the individual's established beneficiary designations, Last Will and Testament, or intestacy law.

Final Thoughts

While traditional models for planning and providing for disabled individuals (i.e. Special Needs Trusts) will remain a key fixture for many families, the ABLE Act has provided a unique mechanism that can supplement and fill-in the gaps where families are concerned with the costs and expenses associated with those traditional planning alternatives.

Transfers to Minors: Where Do I Start? What Should I Consider?

Thursday, September 22, 2016

Two of the most commonly used methods of transferring money and assets to minors are a Uniform Transfer to Minors Act (UTMA) Account or a Trust. Baby in Suitcase with Money A UTMA Account is relatively simple to create and fairly inexpensive, but you cannot exercise any control over the assets. While a trust allows you to maintain a level of control, the expense may be substantial. Below are several pros and cons of each to consider before making your decision. Both mechanisms can be implemented during a parent’s lifetime or upon their death. If you want to provide a gift to a minor child or some other beneficiary that has not yet reached adulthood, depending on your personal goals for the gift a UTMA Account or Trust may be the perfect mechanism to achieve the desired result.

UTMA Account

Whether you are a parent, grandparent, aunt, uncle, or friend, you can use a UTMA Account to make a gift to a minor child. If you decide to use a UTMA Account, you will need to appoint a Custodian to manage the account. Once the account is opened, you can transfer whatever assets you like into the account. Once the assets are transferred, the child becomes the owner of the property. Your child will not be able to gain control of the property until he or she is 18 or 21 depending on the law in your state. Once your child reaches the specified age, he or she gains complete access and control of all assets that remain in the account without limitation. Prior to reaching the specified age, the custodian may use or expend the funds for the child’s benefit. For example, if you contribute $100,000 into a UTMA Account, the Custodian can expend the money for the child’s benefit for legitimate expenses prior to the child reaching the specified age or the Custodian can leave the money in the account until the child turns 18 or 21 and, at that moment, your child is entitled to the entire balance of the account. In each state, the rights and responsibilities of the custodian are specifically outlined by statute. A breach of these responsibilities (also known as “fiduciary duties”) will subject the custodian to personal liability for any mismanagement of the UTMA Account proceeds. Some states create additional duties such as providing an annual accounting, right of inspection, and other unique duties that a custodian must abide by.[1]


  • Simple and easy to set up. Similar to setting up an individual bank account, only requires that an adult be named as custodian until the child reaches the age of majority in your state (18 or 21).
  • The custodian’s powers are governed by statute and are very broad.
  • Generally, a custodian may make withdrawals from the account for the child’s benefit, so long as the expenses are legitimate. The custodian has a high degree of discretion for the use and expending of property for the child’s benefit without court approval.
  • The income earned in the UTMA Account is generally taxed at the child’s tax rate not your individual rate.


  • Once your child reaches the age of majority, the funds are legally his/hers.
  • Once the UTMA Custodianship terminates, your child will have immediate unfettered access to the assets and can expend the assets however he or she wishes. They can use the assets for ANY purpose (e.g., vacations, Ferrari’s).
  • As ownership transfers at the time of contribution, financing higher education can be negatively impacted as the assets in the UTMA will be considered during the financial aid analysis formula.
  • Once you have contributed money or assets, there is no getting them back.
  • Your child will have to file an annual tax return if the income generated from the account meets certain thresholds. Depending on the amount of income, the “kiddie tax”[2] may also apply.
  • The custodian has a high degree of discretion regarding use and expending property. Limitations on the use of the property is almost nonexistent. An irresponsible Custodian may exhaust the funds prior to your child reaching age 18 or 21.

Trust for a Minor

Trusts can be tailored to meet your specific needs. The trust may be intended to provide funds for your child during childhood, or simply a means of protecting the assets until your child reaches adulthood. Some trusts are used for specific purposes, such as education or medical expenses. The trust is created by a legally operative document (i.e. a will or a specific trust document). A Trustee will need to be appointed to manage and distribute assets of the trust in accordance with the trust document.

Generally, the trustee manages the assets for your child until some specified age or event triggers the trust to terminate and the trustee then distributes all of the assets. A single trust can have multiple beneficiaries.

By using a trust, you can dictate specific uses of the contributed property, specific events that entitle your child to distributions, and various other conditions as you see fit. The use of a trust allows you to make substantial contributions of assets to minor children without the fear that the funds will be mismanaged by your minor child due to immaturity. For instance, if you wanted to leave your child $100,000, you can limit how that money is distributed to your child or when your child can gain unfettered access to the money. The trustee has similar fiduciary responsibilities to that of the custodian. By using a trust, you can create a Trust Protector. The Trust Protector oversees the trustee’s actions of the trustee and ensure the trust funds are not mishandled. If the Trustee performs any action not authorized under the trust, the Trust Protector may remove the Trustee and appoint a successor. If any harm has resulted as a result of some unauthorized transaction, the Trust Protector or the beneficiaries of the Trust may file a lawsuit seeking court intervention.


  • You, as the creator of the trust, control how the assets are to be handled. Thus you can be creative regarding how the funds are distributed. For example, you can limit the child to receiving distributions of 1/3 the principal and interest at age 25, 30, and 35 or limiting a portion of the distribution to be contingent upon graduation from college, graduate school or professional school. Recall that when using the UTMA Account, your only option for distribution is age 18 or 21.
  • Depending on your wishes, a trust allows you to dictate what actions a Trustee can and cannot take regarding the use of assets and distributions to the beneficiaries.
  • Depending on the size of your family, you can create several trusts (one for each child) or a single trust that allows the trustee to manage and distribute funds based on the individual needs of each child.
  • The assets can be protected from threats of bankruptcy, future lawsuits, and divorce.


  • The creation of the trust requires very specific language and should be drafted by an attorney.
  • The creation and maintenance can involve substantial legal fees.
  • Trustee must file an annual tax return for the trust. If the trust generates income and the trustee does not distribute the income to the beneficiaries, the Trust could be taxed at the highest rate of 39.6% depending on the amount of income generated.[3]
  • The trustee may have to produce the trust document or will to banks and other institutions before the bank will allow the trustee to take action.
  • Absent the inclusion of a Trust Protector, the beneficiaries of the trust must bring a lawsuit against the trustee in the event he or she mishandles the trust funds.

Final Thoughts

In deciding which option is best for your situation, you should take note of not only the initial costs but also what you wish to achieve. If you intend to provide your child with a substantial amount of money and assets, a UTMA Account may not be the best option as the child will have unfettered access once he or she reaches the specified age (usually 18 or 21). On the other hand, if you simply wish to provide your child with a small transfer of assets (down payment on a car or starter home), a trust may not be the best option as the administrative costs may outweigh the benefit.

[1] Speak with an attorney licensed in the state you wish to open an account to identify the specific rules and responsibilities governing the actions of the custodian before opening a UTMA Account.

[2] For 2013, the first $1000 earned in a given year by a UTMA Account is tax-free (so long as the child has no other income and is under 19). The next $1000 of investment income is taxed at the child’s tax rate. Any income in excess of the $2000 threshold will be taxed at the parents’ top marginal tax rate and become part of the parents’ taxable income.

[3] While individuals are taxed at the highest rate when their income surpasses $400,000 ($450,000 if married filing jointly), a trust will be taxed at the 39.6% rate for any income in excess of $11,950. 

The Do Not Resuscitate (DNR) Order Has Been Replaced With the New and Improved MOLST Form in Maryland

Thursday, September 22, 2016

When it comes to protecting your loved ones, we MOLST Blog Pictureencourage you to have an Advance Directive (See Get an Advance Directive: Don’t Be a Headline; Should I get an Advance Directive, a Living Will or a Health Care Power of Attorney?). Having an Advance Directive is effective in explaining your wishes and giving someone the authority to act on your behalf. To be absolutely sure your wishes are followed, however, you should consider completing a Maryland Orders for Life-Sustaining Treatment (MOLST) form.

The MOLST form is a medical order form that contains orders about cardiopulmonary resuscitation and other life-sustaining treatments. Unlike an Advance Directive, the MOLST form is more specific and contains a more in-depth look into the various medical procedures that could be used during cardiopulmonary arrest and other emergency situations. For example, in an Advance Directive you may include generally your wishes with regard to artificial ventilation or artificially administered fluids and nutrition, but most Advance Directives do not include your wishes with regard to blood transfusions, hospital transfers, medical workups or dialysis situations. The details of the MOLST form provide the patient with a plethora of medical decisions that must be taken into consideration during an emergency situation, many of which are not taken into consideration when drafting an Advance Directive.

The MOLST form acts as added protection to correct any limitations an Advance Directive may have. For instance, if you reside in a nursing home and an emergency situation presents itself, your healthcare agent is not present. If a decision must be made to resuscitate you and the personnel must act vigilantly, they would probably perform CPR. But if you wished that CPR not be performed then your wish may not be followed. The MOLST form prevents this situation and stands in place of your Advance Directive, ensuring that your wishes are followed.

A MOLST form is completed by a patient or health care agent (if his/her decisions are consistent with a known advance directive of the patient) when the patient is incapable of making an informed decision, and is signed by a physician. Once signed, it becomes a valid medical order and all medical facilities must comply with it. More specifically, nursing homes, assisted living facilities, hospices, home health agencies, kidney dialysis centers (upon new admission), and hospitals (upon discharge of the patient to another medical facility) must complete a MOLST form for a patient. Also, in situations where the patient is hospitalized or institutionalized, the MOLST form must follow the patient.

When planning for the future, it is beneficial to consider completing a MOLST form. You can attempt to plan every aspect of your life, however, as we all know things can happen unexpectedly. Let the medical providers ensure your wishes are followed and take the burden off your health care agent of having to be available at all times in the case of an emergency.

The End of the 12 Year Maryland Estate Tax Experiment

Thursday, September 22, 2016

The Maryland legislative session of 2014 began with a bang. Specifically, the House introduced HB 739 that presumably could cause major changes to the way you and I plan for the inevitable. Yesterday, the Maryland Senate approved Maryland State HouseHB 739 that will recouple the Maryland estate tax exclusion with that of the federal government.

For over a decade, Maryland has taken the position that it would operate separate from the federal system regarding the taxation of estates. When the federal government began making changes to the federal estate tax system in the early 2000’s, Maryland froze the estate tax exclusion at $1,000,000 per estate and capped the tax rate on any amount in excess of the exclusion at 16% and completely decoupled itself from the federal system.

Meanwhile, the federal estate tax exclusion has grown to over $5,000,000 and the concept of portability for married individuals was created. However, Maryland stood strong and chose to remain decoupled.

After a dramatic 12 year experiment, Maryland has decided to recouple itself to the federal system. With a vote of 119 to 14, HB739 passed in the House on March 7, 2014 and the bill passed in the Senate with a 36 to 10 vote on March 20, 2014. All that remains before this bill becomes law is Governor O’Malley’s signature of approval. Specifically, HB 739 proposes to gradually increase the estate tax exclusion, which currently sits at $1,000,000 per estate, to the federal level at $5,000,000 per estate.

Current Law
In 2002, the federal government began making substantial changes to the federal estate tax system. To avoid eliminating state estate tax revenue, Maryland enacted several pieces of legislation between 2002 and 2006, which froze the state estate tax exclusion at $1,000,000 and capped the tax rate on any amount in excess of the exclusion at 16%.

While the concept of portability has been presented on multiple occasions, the Maryland legislature has yet to approve the device.

As the law currently stands, if you or a loved one passes away this year, your estate will be able to exclude $1,000,000 of your taxable estate from estate tax. Any excess above and beyond the exclusion will be taxed at a rate of 16% and your estate will need to file a return and pay the outstanding tax liability.

HB 739 Changes
Upon enactment of the bill, the Maryland estate tax exclusion will gradually increase as follows:

  • If you (or a loved one) passes away in 2014, the estate will be able to exclude $1,000,000.
  • If you pass away in 2015, your estate will be able to exclude $1,500,000;
  • If you pass away in 2016, your estate will be able to exclude $2,000,000;
  • If you pass away in 2017, your estate will be able to exclude $3,000,000; AND
  • If you pass away in 2018, your estate could exclude up to $4,000,000.

The proposed bill does not change the cap of 16% on the excess over the exclusion amount. Therefore, any excess above and beyond the exclusion amount for a given year will continue to be taxed at a rate of 16%.

More Changes to Come?
Portability is a term used in the federal estate tax realm, where the estate of a married individual would pass any unused estate tax exclusion amount to the surviving spouse’s estate upon his/her death. The surviving spouse may exclude the sum of any unused exclusion from the deceased spouse’s estate and her own estate exclusion amount.

Currently, Maryland estate tax does not allow for portability of unused estate tax exclusion that may remain after a married individual dies. Early this month, the House introduced HB 1214 which proposes to establish portability as a mechanism that may be used for married individuals that do not exhaust their individual estate tax exclusion. By allowing “portability” the surviving spouse whose estate increased as a result of deceased spouse’s death would then be able to include the unused exclusion of the deceased’s estate with surviving spouse’s estate tax exclusion amount. In essence, if you die in 2014 and your estate tax exclusion only amounted to $500,000, then your surviving spouse would be able to claim your unused portion estate tax exclusion. Thus, your surviving spouse’s estate tax exclusion would increase to $1,500,000[1].

What does this mean to you?
With recoupling to the federal system in sight, the stresses of planning for the inevitable may have been relieved ever so slightly. By recoupling with the federal system, you as an individual can plan with ease, as your estate plan will accounts for both the Maryland and federal systems without requiring creative planning to address each system separately. Unless your estate exceeds $5,000,000 and potentially $10,000,000 if you are married, creative planning for estate tax purposes may no longer be necessary. 

[1] Your unused exclusion amount ($500,000) + Surviving Spouse’s exclusion amount ($1,000,000) = Surviving Spouse’s Total Exclusion ($1,500,000). 

Maryland Same Sex Estate Planning in 2013 and Beyond

Thursday, September 22, 2016

Estate planning in Maryland for same sex couples is dramatically different as a result of two groundbreaking legal developments in 2013. On January 1 same sex marriage became legal in Maryland and on June 26 the Supreme Court struck down portions of the Defense of Marriage Act (DOMA). As a result, same sex married couples in Maryland have all the state and federal benefits afforded to their heterosexual counterparts. I underlined “married” to remind you that these benefits require a marriage (i.e., don’t dilly dally). Here are the five most important things to understand going forward:

1. No more inheritance tax surprises.

Prior to 2013, the surviving member of a same sex couple was not exempt from inheritance tax. This lead to some nasty surprises such as getting an inheritance tax bill for half of the value of the jointly owned house after the first member of the same sex couple died. (See Domestic Partnerships: How to Avoid Costly Inheritance Taxes on the Family Home). Now, so long as the same sex couple takes the steps necessary to become legally married, they are exempt from inheritance tax.

2. Enhanced Legal Protection for those Without a Will.

The law in Maryland provides certain protection to spouses when there is no Will. To begin with, a spouse has the highest priority to become the personal representative (i.e., executor). The spouse is also entitled to an intestacy share of the estate, usually one-half, in the absence of a Will. Prior to 2013, unless a same sex couple had a Will, the surviving member of the couple would not be given any priority to become personal representative and would be entitled to no share of the estate.

3. Protection from disinheritance.

Maryland law also contains provisions designed to prevent the disinheritance of a spouse. Regardless of what the Will provides, a spouse can “elect against the Will” and take a statutorily provided share – one third. Now same sex married couples also have that same protection against being disinherited.

4. Unlimited Marital Deduction from Estate Taxes.

In both the Maryland and Federal estate tax schemes, there is no limit to the amount a spouse can give to their surviving spouse without paying estate taxes. As a result of both Maryland’s enacting of same sex marriage and the defeat of DOMA, same sex married couples now enjoy the same privilege.

5. Estate Taxes Are Still a Potential Problem.

Just as with heterosexual married couples, same sex married couples need to understand that there is still a potential estate tax problem. While there is an unlimited marital deduction, there are still potential estate taxes due upon the death of the second spouse. The second-to-die still can only give away $1 million dollars in Maryland tax free (federally the number is $5.25 million). Thus for same sex couples whose taxable estate may be more than a million at the death of the second spouse, estate tax planning should be considered. (See No. 5 in The 5 Most Important Reasons to Have a Will). Don’t think you have enough assets to worry about this? Remember, the taxable estate includes anything that passes as a result of a death. Thus, assets like IRAs, 401ks and life insurance policies, which do not have to go through probate, are still a part of your taxable estate. 

Problems with Joint Ownership

Tuesday, September 13, 2016

What is a Durable Power of Attorney Anyway?

Tuesday, September 13, 2016

So many people come in to see me and are convinced that they need a Durable Power of Attorney (DPOA). When I ask them why, they don’t know. Further probing usually reveals that they aren’t quite sure what a DPOA actually is. Let me see if I can explain the idea.

Simply put, a power of attorney is a legal document where you give power to someone else (your agent) to act on your behalf. It is similar to hiring an attorney. The attorney is your representative and performs acts or conducts affairs on your behalf. Also, just like an attorney, your agent is under a duty to act for your benefit. If the power of attorney is “durable,” the power you have given continues even if you become incapacitated. However, any power you have given to an agent under a DPOA terminates upon your death.

A DPOA is one of the three legal documents in a basic estate planning package along with a Will and an Advance Medical Directive. A standard DPOA is written to give your agent the power to do anything you could do. Thus your agent can talk to the cable company, access your bank accounts, and even sell your house! It goes without saying that the choice of an agent is an important one.

The DPOA is an essential tool to protect yourself in the case of future incapacity. Let’s face it, we all know someone who has been diagnosed with Alzheimer’s or dementia. Alzheimer’s and dementia are easily the most common causes of incapacity. The conditions are incapacitating when they prevent a person from being able to handle his or her financial affairs. By creating a DPOA now, while still healthy, you can make sure that someone you trust has the power to conduct your affairs and protect you during incapacity.

What Happens To My Kids If I Become Incapacitated?

Monday, June 06, 2016

One of the overriding purposes driving people to create and establish an estate plan is to ensure their minor children are cared for and will continue to be provided for in case a tragedy befalls the family and one or both parents pass away.

Benefits of a Last Will and Testament

One of the great benefits of having a Last Will and Testament is the ability to appoint guardians for your minor children. However, your Will does not have any effect during your lifetime. It only becomes effective upon your death. What if the tragedy does not result in your death but merely incapacity or inability to provide for your minor children? (e.g., as a result of a car accident you are in a coma). Who is authorized to serve as guardian for your minor children and how can you ensure the right person is appointed? Several states including Maryland have developed a statutory mechanism that allows parents to plan for this very real tragedy and that mechanism is called a “standby guardian”.

The Future Care of Your Children

A standby guardianship allows parents to plan for the future care of children without terminating their own parental rights. A standby guardianship is similar to the nomination of a guardian for minor children under your Last Will and Testament, except that the standby guardianship may become effective during your lifetime. A parent may be diagnosed with a life threatening disease or an accident may change the parent’s situation drastically in an instant. By designating a standby guardian, parents ensure that their children are cared for by an individual(s) of their choosing. The standby guardianship allows the guardian(s) to take action in advance of petitioning the court for a court ordered appointment as guardian of the minor child.

How The Process Works

In order to designate a standby guardian, the parent must only execute a written designation that is (1) signed in the presence of two witnesses and (2) signed by the designated standby guardian. The designated standby guardian is appointed when a “triggering event” occurs. The triggering event may be the incapacity, death or written consent for the guardianship to commence. Once the triggering event occurs, the standby guardian’s authority begins. Thereafter, the standby guardian must petition the court to appoint the standby guardian as guardian of the minor child within 180 days. Parents can revoke the standby guardianship at any time prior to the filing of the petition by any means that demonstrates an intent to revoke the designation.

Best practices dictate that a parent with minor children should provide for guardianship of minor children through a will and also through a standby guardianship. While it is impossible to plan for every possible occurrence in an individual’s lifetime, planning for the care of your minor children can be simplified by including a standby guardianship in your estate plan. At Berman, Sobin, Gross, Feldman & Darby, LLP we include a standby guardianship as a part of our basic estate planning package for all clients with minor children.

By Patricia Zeleznik


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