Laws are changeable things, particularly the tax laws concerning inheritance. Rather than creating estate plans with rigid, defined inheritance plans, think about building in some flexibility.
Rather than state a specific amount, you may wish to state a percentage of your estate. For example, if you have four beneficiaries and would like to divide $100,000, instead of stating explicitly that you want each person to receive $25,000, you can state that they receive 25%. Another way to write this detail is to say “$25,000 or 25%, whichever is the greater”.
Why do this? Your estate may fluctuate after your will or trust has been written. You may have less funds than you thought when creating the documents, particularly after taxes have been considered. Alternatively, you may have more assets after your death, especially if you have stock that rises and falls with the market. By naming only a dollar amount, you potentially limit what your beneficiaries receive. If your estate has grown, you may shortchange your heirs; if your estate has shrunk, you may not be able to fulfill the stated amounts. Of course, if it’s your desire to place finite monetary limits on what your heirs receive, then you should talk with your estate attorney about options.
For married couples, it’s a more common practice now to place a portion of the first spouse’s estate into a trust, especially if the couple’s estate is sizeable or near the taxable limits. This potentially allows beneficiaries to receive assets twice and remain under the legal taxable limit once the other spouse passes.
By writing in a disclaimer, you allow your spouse or inheritor up to 9 months to disclaim any assets they may have received from your estate. This means that they can disclaim, or refuse to acknowledge, parts of the assets or the assets in full. They may want or need to do this for a variety of reasons. The current federal estate and gift tax exemption is $5.6 million per person, and the Maryland exemption is $5 million after January 1, 2019. For estates greater than $5 or $5.6 million, the estate tax will have to be paid.
However, other taxes may apply to inheritors, such as income tax on interest or dividends. Including a disclaimer provision allows your beneficiary to directly keep an amount that is of financial benefit to them and then place the remainder into a trust. This helps them consider their personal finances when accepting assets and avoid an undue burden that would actually be more harmful than helpful.
If you are unsure about how to structure your estate plans, talk to a professional for advice.