Minimizing Estate Tax Liability in Northern Virginia

The estate planning lawyers of northern Virginia’s HALE BALL MURPHY, PLC Carlson Baumgartner Murphy, PLC provide innovative ways for testators and personal representatives (executors) to reduce estate tax liability and ensure that all important records are being kept. Regardless of whether you are planning for your own estate and are looking for ways to transfer as much of your wealth to your loved ones as possible or you are an executor who is seeking to minimize the tax impact on the estate you are administering, the professional tax and estate planning attorneys of HALE BALL MURPHY, PLC Carlson Baumgartner Murphy, PLC can assist you in minimizing the portion of the assets that the government can tax. Contact our Northern Virginia office to discuss a tax-minimizing plan for your estate. Our attorneys can also assist in other related matters. Whether you need to create an estate, draft a will, or make sure an estate is completed and closed, our estate attorneys are here for you.

Estate Tax Liability Minimization in North Virginia

For most estates, the tax exclusion of $11.58 million for 2020 (and indexed to be inflation-adjusted in future years) is sufficient to avoid the federal estate tax. Larger estates, however, face a current tax rate of 40% for any amount exceeding the exclusion. And if the current law is allowed to sunset, in 2026 the estate tax exemption amount chops to $5.49 million.

One of the most common ways to reduce the estate tax impact is to avoid it altogether. That’s why after a careful review of our clients’ goals, our estate planning lawyers for large estates will sometimes recommend transferring some of the assets into an irrevocable trust. With this type of trust, the grantor transfers ownership of the assets into a trust and cedes control over them to a third party. Because the individual making the trust no longer owns the assets if planned for properly, they are not counted as part of the estate at the time of death.

Another option is a gifting program during one’s life, taking advantage of the $15,000 annual gift tax exclusion amount. Or gifting large amounts now while the exemption amount is high. The IRS has indicated they will “grandfather” these gifts even if the exemption amount chops.

Another tax-minimizing strategy involves the valuation of fluctuating assets. The IRS allows executors to choose an alternate date within six months from the time of death for the purpose of asset valuation. What this does is allow for the selection of a date where assets were at a low point for the purpose of valuation. This can be tremendously useful when valuing stocks, bonds, or real estate if the market is in a state of decline.

IS MY ESTATE TAXABLE?

As Benjamin Franklin said, “In this world, nothing can be said to be certain, except death and taxes.”  Need help figuring out if your estate will be subject to estate tax? The attorneys at HALE BALL MURPHY, PLC can help.  The federal estate tax laws have changed frequently and are slated to change again in 2026.

FEDERAL ESTATE TAX

The current federal estate tax exemption amount is $11.58 million per person (up from $11.4 million in 2019).  A married couple can combine their exemptions for a total exemption amount of $23.16 million. This amount increases each year as it is adjusted for inflation, until the year 2025.  In 2026, these increases in the federal exemption amount will sunset. The exemption amount reverts to the 2017 level of $5.49 million as adjusted for inflation unless Congress enacts legislation to extend the current exemption levels.  

The taxable estate is the gross estate value minus allowable expenses and deductions.  The federal estate tax rate is 40 percent. For example, a couple has a taxable estate of $24 million and pass away in 2020.  The couple’s heirs would be able to exempt up to $23.16 million from estate taxes and only owe federal estate taxes on $840,000.  At the 40% tax rate, the heirs would owe $336,000 in federal estate taxes.

VIRGINIA ESTATE TAX

Virginia does not impose an estate tax or an inheritance tax.

MARYLAND ESTATE TAX

As of January 1, 2020, the estate tax exemption amount in Maryland is $5 million; for a married couple $10 million. The maximum tax rate is 16 percent.

In addition to estate tax, Maryland imposes an inheritance tax of 10% on all distributions to individuals who are not exempted.  The primary persons exempted are spouses and children. Unless the Will directs the estate to pay the inheritance tax, the beneficiary has to pay the tax.  For example, an uncle leaves his Rolex watch valued at $35,000 to his favorite nephew. The nephew is liable for the $3,000 in inheritance tax. The nephew will get a bill from the Register of Wills.  Failure to pay on time will result in substantial fines and penalties. Even if the beneficiary receives a distribution outside the probate process, say a stock account passed by a transfer on death designation, the beneficiary is still subject to the 10% tax. 

GIFT TAX

The lifetime federal gift tax exclusion amount is the same as the federal estate tax exclusion amount.  To the extent a person makes gifts during their life which exceeds the annual gift tax exclusion amount, they will be using up some of their estate exemption amount and they should file IRS Form 709. You can give during your life or leave at your death up to $11.58 million without it being taxed by the federal government.

However, a person can make annual gifts without using any of their lifetime gift/estate tax exemption amount of up to $15,000 per person per year.  This exclusion amount has been unchanged since 2018. A married couple can make a joint gift of $30,000.

Neither Virginia nor Maryland has a gift tax.

Professional Estate Planning Lawyers for Virginia, Maryland, and the District of Columbia

The Attorneys of HALE BALL MURPHY, PLC Carlson Baumgartner Murphy, PLC use these and other inventive ways to reduce the impact of federal estate taxation for our clients. With over forty years of estate planning and probate law experience, the lawyers at Hale Carlson Baumgartner, PLC have established reputations as some of the Commonwealth of Virginia’s foremost estate planners. To schedule an appointment at our Fairfax office, contact us online call 1-703-591-4900.