Category Archives: Estate Planning and Probate

What Does it Mean for an Estate to be Insolvent?

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Author: Victoria Chan-Pablo

What is an insolvent estate?

An estate is insolvent when the decedent’s debts exceed the value of his or her assets and there are insufficient estate assets to pay for expenses of the estate, such as administration expenses, funeral expenses, and valid claims against the estate, etc. In other words, an insolvent estate is one in which the debts exceed the value of the assets. In this circumstance, creditors of the estate may reduce the debt or write off the loss, and unfortunately the heirs or beneficiaries of the estate will not receive a distribution.

What is a solvent estate?

A solvent estate is an estate in which there are sufficient assets to pay all debts, funeral expenses, and administrative expenses in full. In other words, a solvent estate is one in which there are still assets left over after all the debts have been paid. In this circumstance, after all debts of the decedent and all administration expenses are paid, the remaining balance of the decedent’s estate is distributed to the decedent’s heirs or beneficiaries pursuant to the decedent’s last will and testament. If the decedent did not have a will, the remaining balance of decedent’s estate would be distributed in accordance with the rules of intestacy. Rules of intestacy go into effect when a person dies without leaving a valid will and determine the order of distribution among the decedent’s heirs.
Of course, having a solvent estate is ideal so that your beneficiaries and heirs inherit a portion of your estate. Talking with an estate planning attorney and preparing a will are important to help plan for a solvent estate. To learn more about creating your own estate plan, please contact our office.

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Planning for Your Pets After Death

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Author: Denise A. Martin

Many of us have pets that are beloved family members, and as responsible pet owners, it makes sense to plan for the possibility that your pet(s) will survive you. Estate planning documents, such as your will or a trust, enable you to set aside money for your pet’s care after your death, as well as to appoint a caretaker for the pet. In recent years, Maryland legislators established a Pet Trust Statute, MD. CODE ANN., EST. & TRUSTS, § 14-112. This statute enables you to include a pet trust provision within your will or a separate trust document to provide for the care of your pets, and this provision is enforceable by the individual you appoint as the pet(s)’ caretaker. Your pet trust can provide for the care of multiple animals, as long as those animals were alive during your lifetime.

A pet trust must terminate upon the death of the last animal beneficiary of the trust, and any remaining assets will be distributed to the individuals or entities designated in the pet trust. If no such designation is made, the assets will be distributed to the residuary legatees under the owner’s will, or, if there is no will, to the owner’s heirs at law.

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The Current Status of Estate and Inheritance Taxes in Maryland

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Author: Charles F. Fuller

At some point in time, many of us are confronted with the issue of whether or not to have tax planning included in our estate plan, i.e., within a will or trust. Dating back to 2002, the Maryland Legislature decided that Maryland would impose its own estate tax, separate from the federal estate tax. This process was known generally as “decoupling.” As a result, since 2002, decedents in Maryland were subject to an estate tax at the rate of 16% on assets in excess of $1 million. A married couple with appropriate estate tax planning could shield up to $2 million in assets from the Maryland estate tax.

During the 2014 legislative session, the Maryland Legislature amended the Maryland estate tax law. Over the next several years, the amount of assets that a decedent must have before the Maryland estate tax is imposed upon them will increase until this amount is equivalent to the amount exempt from Federal estate taxation. Under the new law, effective January 1 of each year, the amount of assets exempt from Maryland estate taxes will increase as follows:
Year Assets Exempt From Tax
2015 $1.5 Million
2016 $2 Million
2017 $3 Million
2018 $4 Million
2019 Equal to the Amount of Assets Exempt Under Federal Estate Tax Law
Currently, it is projected that in 2019 both Maryland and Federal estates will be free from estate taxes so long as a decedent’s estate does not have assets exceeding $5.9 million. The estate tax is paid by the estate, and the personal representative is responsible for filing the necessary estate tax returns and paying the required estate taxes.

While Maryland has changed its estate tax laws, its inheritance tax has not been changed. Currently, Maryland imposes a 10% inheritance tax on both probate and non-probate property that passes to certain beneficiaries who are not exempt from the tax. As a general rule, close family relatives are exempt from the inheritance tax in Maryland, and all others receiving property are subject to the tax. The group that is exempt from the tax includes the following family members of a decedent: a surviving spouse, parents and grandparents, children and other lineal descendants, spouses of children and other lineal descendants, stepparents, stepchildren, brothers and sisters, and corporations where all of the stockholders consists of the above exempt family members. It is important to note that this tax applies to property received by non-exempt beneficiaries that was jointly owned with the decedent at the time of death and to transfers made by the decedent within two years of death. Thus, inheritance taxes are imposed upon persons who receive an interest in property from the decedent outside of their estate. The inheritance tax is often paid by the personal representative prior to distributing property to the beneficiary. If there is no estate to be administered or if the personal representative does not pay the tax prior to distribution, the beneficiary is liable for payment of the inheritance tax directly to the Register of Wills in the county of the decedent’s residence or where the property is located.

Although the law has changed recently in regards to the Maryland estate tax, it can still be very important for you to include in your estate plan appropriate tax planning to avoid the imposition of the estate tax while the exemption amount is being incrementally increased. Further, it may be important to plan gifting and other transfers of property in order to attempt to avoid the imposition of the Maryland inheritance tax.

Please feel free to contact me or any of the other attorneys at McChesney & Dale at (301) 805-6080 if you have questions regarding the Maryland estate or inheritance taxes.

Two Estate Planning Documents You Might Need Tomorrow

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By: Denise Martin

There are two estate planning documents that everyone should have, whether they are young or old, rich or poor, married or single: a power of attorney and a living will. While people generally think that estate planning documents are for after you die, a power of attorney and a living will are documents that actually can only be used during your lifetime.

A power of attorney is a document in which you designate an agent with the authority to act on your behalf regarding financial and legal matters. You can limit the authority you give to your agent in a power of attorney, such that it can be used in only a particular circumstance. For instance, if you need to sell your home but are unable to be present on the closing day, you could prepare a power of attorney giving a friend or family member the limited authority to sign the closing papers for you. Often, however, we recommend the preparation of a power of attorney that is broad in its scope so that you have someone (typically a spouse, family member, or close friend) who can act on your behalf with respect to a wide array of matters. This would be particularly helpful if you were to become disabled and unable to handle your own affairs. The general power of attorney document we prepare at McChesney & Dale allows your agent to pay your bills, invest your money, file and pay your taxes, manage your retirement benefits, etc.

The other document everyone is advised to have for use during their lifetime is a living will, also called an advance medical directive. This is a document that allows you to specify the structure of your medical care under certain circumstances. First, the living will allows you to determine whether you want medical interventions used to try to extend your life if you have a terminal condition or are in a vegetative state. Second, the living will allows you to appoint an agent who can make medical decisions for you if you become incapacitated.

Please feel free to contact me or any of the other attorneys at McChesney & Dale at 301-805-6080 if you have questions about a power of attorney or a living will.