Do you need a will?
Everyone has heard the threat that the State will seize your property if you die without a will. This is urban legend, except in the rare case in which an individual dies without any family (that is, no one is alive who has descended from any of the person’s great-grandparents). If you die in Maryland without a will, the laws of intestacy determine how your property is distributed. These laws track how many, if not most, people, choose to allocate their assets upon death.
Under federal law, assets under $5,250,000 are exempt from taxation.
Writing a will can be important to vary the law’s presumption of where and how you want your assets to be distributed. A will can and should specify the personal representative, the person who administers the estate; the person or persons to be named as guardians of minor children if both parents die; the trustees of any trusts formed for the benefit of minor children, a surviving spouse, or other purposes. In addition to the persons responsible for organizing the financial and familial aspects, the will can specify the persons or charities entitled to share in the person’s assets.
Finally, persons with large estates often need wills and other documents to plan the most advantageous manner in which to distribute wealth while legally minimizing the taxes payable upon death. While the federal estate tax is being phased out, as it stands, only persons dying in 2010 will be free of federal estate tax. It is obviously better to plan with an eye to some tax consequences.
A good estate plan often includes a durable power of attorney, giving a trusted person the right to manage your financial and perhaps health care decisions in the event that you become disabled. In addition, an advance directive instructs your family members and health care providers about the level of maintenance you wish to have in the event of a catastrophic illness affecting your ability to breathe or maintain consciousness.
What about taxes?
The Maryland inheritance tax was repealed on gifts to most family members. This applies to Maryland residents who die on or after July 1, 2000. The inheritance tax of .9% applied to property transferred to grandparents, spouses (with some exemptions), parents, children and other descendants, and 8% to siblings (collateral relatives). The inheritance tax applied to estates of all sizes, and sometimes prevented a bequest of specific property to be upheld, if the estate had insufficient cash to pay the inheritance tax.
Congress passed legislation to repeal the federal estate tax, which now applies to estates valued at more than $1,500,000 for persons dying in 2004 or 2005. The estate tax is repealed entirely in 2010. The legislation expires, however, in 2011, which would reinstate the estate tax at the $1,000,000 level. Congress is considering the permanent abolition of the estate tax. Nothing is permanent in legislation, however, without a constitutional amendment.