A 2007 study published by Harris Interactive® for Martindale-Hubbell® found that 55% of all adult Americans do not have a Will. These people risk leaving estate and custody decisions in the hands of state lawmakers and courts.
Each state has different intestate laws (intestate = death without a Will). As such, the state, rather than the client, dictates the manner in which the estate is distributed. If property is distributed via intestate laws, distribution occurs in accordance with a fixed formula and does not take into account any special needs or any individual and/or family member.
When parents or legal guardians die without a Will or other document appointing a guardian for their minor children, they cannot ensure that their children end up in the right home. Instead, the court system selects a guardian for any surviving minor children.
Importance of Living Wills and Advance Directives
Despite sounding the same, a Will and Living Will are entirely different documents. A Living Will dictates what, if any, life-sustaining procedures the client wants rendered. An Advance Directive usually incorporates a Living Will in addition to designating a health care power of attorney and gives specific instructions in the event the client is unable to make health care decisions.
Whether you or a family member believes in life saving methods for personal, religious or other reasons, the advance directive dictates the manner in which they want to be treated in advance of the situation. Further, by placing directives in writing, the choice of how to sustain the client’s life does not fall to family members. You, or they, can also ensure that his family does not suffer unmanageable financial strain if extended treatment is not covered by insurance.
Probate is used to authenticate, validate and execute the will and its contents. In general in Maryland, you can probate an estate as a regular estate or a small estate. Which type of estate it is depends on the probate assets. Importantly, all estates must go through probate. Some estates that go through probate will be closed immediately; others will be open for an extended period of time to provide notice of the will to possible heirs who may have a claim.
Inheritance Taxes – 2012
For 2012, the federal estate tax exemption is $5.12MM. Important to note, absent congressional extension on this, the federal exemption will return to $1MM.
Maryland, is one of only two states in the country (New Jersey is the other) that imposes both an estate tax and an inheritance tax in certain circumstances.
Like the federal system, Maryland has an estate exemption however, the exemption is only $1 million for 2012. For any amount in an estate over $1MM, Maryland can charge a maximum of 16% on every such dollar. Further, Maryland charges an inheritance tax of 10% on every dollar left to a niece, nephew, friend or partner. At this point in time, no inheritance tax is paid on money left to spouses, children, grandchildren, parents or siblings. Another note is that any estate tax owed is reduced by inheritance tax paid.
Washington, D.C. taxes the estate, but not the inheritance, and Virginia has no estate and/or inheritance taxes.
Also, it is important to note is that the Federal exemption is portable, which means that the second spouse can use any unused portion of the exemptions available to the first spouse to pass. For example, if spouse one passes and leaves $5MM in assets to the living spouse; and living spouse has $5MM in personal assets plus $5MM in assets that were passed to her by her deceased spouse, she would be able to utilize the federal exemption for both of them to exempt the entire estate.