By Timothy S. Barkley, Sr. March 2015.

First, the phone call: “Can you look over our wills and trusts? It’s been a few years, and we want somebody to make sure they’re up-to-date.”

Certainly. Let’s get together. Next week?

The meeting.

“We had this done about ten years ago by a lawyer in Baltimore. I read your articles, and I keep hearing about changes in the tax laws. Can you look at this and tell us if we have to change anything?”

The lawyer assents, hefts the proffered three-ring binder of estate papers, and begins to flip through. “Can you tell me about your estate – what’s your net worth? If we sold everything, paid all the debts, collected on your life insurance and cashed in your retirement plans and IRAs, what would the total be?”

The clients glance at each other, and one starts a column of numbers. With some finagling, they come up with a total: “Around two million, give or take.”

The lawyer nods thanks. “You don’t have a federal estate tax issue. That tax kicks in at an estate of $5.4 million, and that number doubles for a married couple. So that’s one problem you don’t have to worry about – as nice as it might be to have to worry about that.” He smiles. “We do have a Maryland estate tax issue, though.

“The Maryland estate tax exemption right now – in 2015 – is $1.5 million. That means that your estate is subject to Maryland estate tax – if both of you died in 2015.

“In 2016, the Maryland estate tax exemption is scheduled to increase to $2 million, so you’d still probably have a very small estate tax exposure in 2016 if your estate grew at all. But in 2017 the exemption rises to $3 million; to $4 million in 2018; and in 2019 the Maryland estate tax exemption is scheduled to equal the federal estate tax exemption.

“Because the federal estate tax exemption simply adjusts with inflation, nobody knows what the exemption will be in 2019, but everyone assumes that it won’t be less than $5 million, and probably a lot greater than that.

“That means that your Maryland estate tax exposure is only really short-term issue – there’s no real tax exposure unless both of you died this year. And then the total tax is only around $160,000. So the question is … “ he strikes a pose “do ya feel lucky?”

Everyone laughs.

“It’s your decision” the lawyer continues, “but if you were coming to me and asking for me to prepare estate documents for the first time, I’m not sure I’d recommend spending money on estate tax avoidance when your exposure to the tax is measured in months. Are you both reasonably healthy? Any reason you both wouldn’t live for a couple of years?”

Both clients shake their heads. “We’re both just fine, some aches and pains and the usual pills, but nothing life-threatening.”

“Then unless you win big at the lottery, you really don’t have a tax problem in a few months. The question is whether we perpetuate the state tax avoidance plan when we probably won’t need it.

“The plan works, but it’s complicated. It creates three trusts when the first one of you dies, and the survivor would have to run them as separate tax entities. They’d need separate tax returns, and the survivor would always have to remember that there were three separate trusts and treat them separately.

“That was good planning back in 2005 when these were drafted. But it serves no purpose at all in 2016 or 2017, and little purpose now. We could uncomplicate your planning if we got rid of the tax planning aspects.

“You could wait until 2016 and then rethink the issues, or we could do this now, while you’re here and it’s on the ‘front burner.’ What do you want to do?”

“Well, what would it look like if we ‘uncomplicated’ things?”

NEXT TIME: Uncomplicating


Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
Mount Airy
Maryland 21771

 (301) 829-3778

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