The Best of Both Worlds: Maryland Extends Spousal Protections to Domestic Partners at Death

By: Joseph M. Fiocco, Esq.

As of October 1, 2023, Maryland law now affords domestic partners similar exemptions from inheritance tax currently enjoyed by spouses.  These updates also extend other beneficial spousal rights to domestic partners upon the death of one domestic partner.

Domestic partners can still obtain an inheritance tax exemption for an interest in a jointly owned primary residence by signing an affidavit acknowledging their relationship or providing proof of a joint obligation of the domestic partners (such as a mortgage).  Now, domestic partners can be exempt from all inheritance tax by filing a Declaration of Domestic Partnership with the Register of Wills for the county in which they live.  The declaration must state each domestic partner’s full name, address, and age, and must be signed and notarized.  If one of the domestic partners was married previously, they must show the prior marriage was fully dissolved before filing the declaration.  These developments mean domestic partners can now totally avoid the up to 11.11% inheritance tax on assets passing to a surviving domestic partner upon death.

Domestic partners who file a Declaration of Domestic Partnership with the Register of Wills now enjoy traditional statutory benefits limited to surviving spouses.  Where a deceased domestic partner dies intestate (that is, without a will), the surviving domestic partner is entitled to the same share of the estate a surviving spouse would have.  The surviving domestic partner of an intestate domestic partner would also have priority to be named the executor of the estate.  The children of the intestate domestic partner share the same level of priority as the surviving domestic partner.  If the parties don’t consent over who is to be appointed executor, the probate court will hold a hearing to settle the question.

Noticeably, the surviving domestic partner is not entitled to receive a statutory share against the will of the deceased domestic partner.  Yet, a surviving domestic partner is entitled to receive the family allowance provided for under Maryland law.  The family allowance provides for $10,000 for the surviving domestic partner’s personal use, and an additional $5,000 for each unmarried minor child.

Your estate planning attorney can help you navigate the implications your relationship status might have on your estate plan.  If you are pondering a domestic partnership, consult with your estate planning attorney to ensure your estate plan reflects your vision for passing on your wealth.

If you would like to speak to an attorney about your estate planning needs, please contact Batoff Associates, P.A. at 410-864-6211.

Trust Decanting Pours Forth Estate Planning Opportunities for Maryland Trusts

By: Joseph M. Fiocco, Esq.

                Are you thinking of modifying a Maryland trust?  Maybe you’re grappling with a drafting mistake or facing an unintended tax consequence.  Starting October 1, 2023, estate planners can use the Maryland Trust Decanting Act to come up with more flexible trust drafting and administration solutions.  Decanting a trust refers to a trustee’s power to distribute all or part of a trust’s assets to a second, often very similar, trust.

                Decanting Benefits

                The trustee does not have to obtain the consent of any interested person, but must only provide sixty days’ notice to those persons, including any person who has the power to remove them as trustee.  The Act allows the trustee to distribute assets to more than one trust, including trusts outside of Maryland.  Even if a trustee’s discretion is limited to distributing assets for the sake of a beneficiary’s health, education, maintenance, or support, the trustee’s decanting power extends to all trust assets.  The Act expressly preserves all marital deductions and charitable deductions for estate tax and gift tax purposes, and preserves the ability for gifts to the trust to qualify for the annual gift tax exclusion.  Decanting has the potential for enhanced administrative benefits, since the Act permits splitting fiduciary powers among trustees, trust protectors, guardians, investment advisors, and other professionals.  The Act particularly supports special needs planning, allowing trustees to decant assets into a special needs trust even if the first trust is not a special needs trust.

                Decanting Limitations

                Decanting cannot generally add new beneficiaries or shift the interests of beneficiaries.  Generally, the second trust has to provide for substantially similar interests to the same beneficiaries as the first trust.  If the trustee is dealing with a charitable interest, they must provide the Attorney General notice of the exercise of the decanting power.  Despite not requiring the consent of interested persons, the Act allows interested persons the opportunity to challenge the exercise of the decanting power in court, regardless of whether they do so outside the sixty day notice period.

                Estate planning requires careful consideration, and clear communication of your objectives with those managing your wealth and those who will inherit your wealth.  It is important to coordinate significant trust modifications with your financial advisor, accountant, and estate planning attorney. When considering a trust modification, you should discuss trust decanting with your estate planning attorney.

                If you would like to speak to an attorney about your trust and estate planning needs, please contact Batoff Associates, P.A. at 410-864-6211.

Watching the Sunset: Planning for the 2026 Tax Law Sunset

By: Alina Pargamanik, J.D.

Several provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 are set to sunset, or expire, at the end of 2025. Without the proper planning, you may face some shocking tax consequences.

The TCJA set forth sweeping tax changes for businesses and individuals, particularly high-net-worth individuals, through permanent tax cuts to corporate profits and lower individual tax rates with a restructured tax bracket. The TCJA reduced the top business tax rate from 35% to 21% permanently, so businesses will not experience much of an impact in 2026. Nevertheless, the top individual, estate and trust income tax bracket would increase back to 39.6% from the current 37% rate.

For itemized deductions, according to the Tax Policy Center, “Under [the TCJA,] itemizers could claim deductions for all state and local property taxes and the greater of income or sales taxes (subject to overall limits on itemized deductions).” This policy is set to change upon the sunset of the TCJA. Although the TCJA repealed personal exemptions, the standard deduction almost doubled under the TCJA from approximately $13,000 to $24,000, but this amount is set to revert back in 2026. The TCJA also restricted itemized deduction for total state and local taxes to $10,000 per year. This cap will be eliminated after 2025.

Additionally, the TCJA doubled the lifetime gift and estate tax exemption from $5.5 million to $11.2 million. In 2026, the estate and gift exemption will revert back to pre-TCJA levels and is expected to be about $6.5 million per individual or $14 million for a married couple. When planning for the TCJA sunset, you should discuss various estate planning options such as annual gifting and Spousal Lifetime Access Trusts (SLATs) with your estate planning attorney.

Unless a significant legislative change occurs between now and 2026, taxpayers should stay vigilant of the upcoming 2026 tax law sunset. Having a plan for your financial affairs is the key to financial success. It is important to speak with your estate attorney and financial advisor to ensure that your tax and estate planning needs are in order.

If you would like to get more information on the 2026 tax law sunset and speak to an attorney about your estate planning needs, please contact Batoff Associates, P.A. at 410-864-6211.