ESTATE AND TAX PLANNING - 2018 LEGISLATIVE UPDATE PART ONE

Wow, what a year!  The General Assembly, working with the Governor, was able to address a wide range of issues in a mostly bipartisan manner.  Not surprisingly, there were a record number of bills filed this year, with 1,269 bills filed in the Maryland Senate and 1,832 bills filed in the House of Delegates. 

This is the first of a two-part LinkedIn series that will examine the bills that were passed in Annapolis this year that affect estate and tax planning, elder law and disability planning laws.  In this first part, the focus will be on estate and tax planning.

The alphanumeric numbers in parentheses are the bills numbers in the Maryland Senate (SB) or House of Delegates (HB).  When bills were introduced into both chambers, both bill numbers are given.  Also, the effective date for each bill has been inserted at the end of each description.
 

MARYLAND ESTATE AND INHERITANCE TAXES:
 

  • Maryland Estate Tax (HB308/SB646).  The amendment to the Maryland Estate Tax will likely create the most buzz this year.  As a result of the Tax Cuts and Jobs Act that passed last year, the Federal Estate Tax applies only to taxable estates in excess of $11.2 million, up from the $5.6 million that was protected under the prior law.  Since Maryland’s Estate Tax was based on the federal law, Maryland had to decide whether to continue to follow federal law, or to decouple from federal law since it was predicted that the cost to the state would be almost $40 million in 2020 alone if nothing was done. 

Maryland chose to decouple, and starting in 2019, there will be an individual exemption of $5 million ($10 million for a married couple) from the Maryland Estate Tax, with no automatic cost of living increases for future years.  Note that for a married couple to take full advantage of their estate tax exemptions, a timely filed federal or Maryland estate tax return must be filed upon the death of the first spouse so that proper elections can be made.  (Effective 7/1/18)

  • Maryland Inheritance Tax (HB198).  A new exemption to the Maryland Inheritance Tax was created for those who own farm property that is subject to a conservation easement.  This tax, which is a 10% tax on the value of the real property, will not apply if nieces and nephews of a decedent inherit such real property from their uncle or aunt and the property continues to be used for farm purposes; if that farm usage terminates, the Inheritance Tax can be recaptured by the state. (Effective 7/1/18)        
     

ESTATE PLANNING AMENDMENTS:
 

The estate planning bills that were enacted this year were all focused on addressing improvements to the Maryland Trust Act (“Act”).  When the Act was originally enacted back in 2014, one of the goals was to put revocable trusts on a more-or-less equal footing with Wills when it came to administering the trusts after the deaths of the creators of those trusts.  This has been an ongoing endeavor as legal practitioners started employing the provisions of the Act in preparing and administering trusts on behalf of their clients.  This year’s crop of amendments included:

  • Governing Law (HB491/SB267).  The creator of a trust can select which state’s law should be applied in interpreting and enforcing the provisions of a trust unless that selection is contrary to some strong public policy. Of course, most states require some nexus between the trust and the state to allow for such an election.  (Effective 10/1/18)
     
  • Contesting the Validity of Trusts (HB444/SB348).  With Wills, upon the death of the deceased, the validity of that deceased person’s Will may be contested by filing a caveat in the Orphans’ Court within six months of the opening of the estate, absent special circumstances.  Under the new law, the validity of revocable trusts may be contested if a person initiates a legal proceeding within one year of the death of the deceased, or, alternatively, within six months of being provided proper notice about the trust agreement.  (Effective 10/1/18)
     
  • Exemption from Transfer Taxes (HB948).  If real estate is transferred by a trustee to a beneficiary of a revocable trust as the result of the death of the trust’s creator, no transfer or recordation taxes shall be charged.  This same rule will also be applied to the transfer of motor vehicles with regard to titling fees and excise taxes.  This change puts distributions from trusts and estates on the same footing.  (Effective 7/1/18)
     
  • Breach of Trust – Limitation Period (HB474/SB1014).  Once a trustee has provided to a beneficiary a report that adequately describes the basis for a claim by the beneficiary against the trustee, that beneficiary must bring an action within one year of that disclosure.  (Effective 10/1/18)
     

CONCLUSION:

Much was accomplished in 2018 regarding estate planning matters, but there will be much to do next year when a new General Assembly will convene.  Issues such as updating our elective share statute and devising a more realistic distribution provisions for intestate estates were left on the table this year.  A new proposal is also being considered that would allow for the decanting of the property from an existing trust to a new trust.  Together with additional tweaks to existing statutes, next year is likely to be just as eventful as this year. 

 

DISCLAIMER:

This article is intended to provide general, educational information about recent legislative changes, and should not be considered as legal advice upon which you should rely.  Please check with your own attorney if you have any questions or would like follow up on any suggestions made within this article.

Michael W. Davis is the Senior Partner of Davis, Agnor, Rapaport & Skalny, LLC. For questions about this article or other questions about estate planning documents, please contact Michael.