Slicing Your Estate Planning Pi(e)
March 14 (3/14) marks National Pi Day, which was established by a physicist (Larry Shaw) to recognize the mathematical constant (𝛑) whose first three digits are 3.14—probably as an excuse to devour lots of pie. National Pi Day is a great occasion to come to our office and discuss how you would like to slice your financial pie when you pass your wealth on to your children and loved ones. No complicated mathematical formulas are necessary to determine whom you would like to leave your money and property to, but it is an important subject that requires some serious thought.
How Should You Slice Your Pie?
With only a few possible exceptions, you are free to use your estate plan to slice up your wealth for the benefit of anyone you choose. Some common beneficiaries you may choose are spouses or other significant others and children. More and more people are also leaving money in trust to be used for the care of their pets. Others want to provide a gift to one or more close friends when they pass away. You may choose to include institutions as well as people or pets in your estate plan: if you have a strong relationship with a favorite alma mater, charity, or church, you may choose to leave money or property for its benefit.
It is crucial for you to create an estate plan to ensure that each person or institution gets the slice you intend. Without an estate plan, your money and property will be divided up according to state law, which may not provide the result you would have wanted. In general, the Maryland laws of intestacy provide that a surviving spouse will receive one-half of your probate estate, plus the family allowance, if there are no surviving minor children. Your children will receive the other half of the estate, or your parents, if there are no children. Only if there are no children or surviving parents will your entire estate pass to your surviving spouse. Stepchildren are recognized under Maryland law but will only receive if there are no other blood relatives. This means that if you had stepchildren or foster children who were beloved but not adopted, or a significant other who was not a spouse, they will likely receive nothing. In addition, without an estate plan, you will lose out on the opportunity to leave your wealth to a nonfamilial loved one or charitable organization of your choice; instead, your wealth will go into the state’s coffers.
By creating an estate plan, you can specify not only to whom you want to leave a slice of your pie, but also the size of that slice. For example, you may want each of your children to receive an equal inheritance, or you may choose to divide up your wealth among your children based upon what you think each one needs. Children who are disabled and unable to provide for themselves may need more than other children who are able bodied or independently wealthy. There is no right answer: it is up to you to determine those to whom you want to leave your money and property and the size of each gift.
Depending on state law, there may be a couple of exceptions that have at least some impact on your ability to specify the size of the slices of your pie:
Spouse’s Elective Share. The Elective Share is a statutory amount of a decedent’s estate that a surviving spouse is entitled to receive under Maryland law. If the decedent has surviving descendants, the Elective Share is 1/3 of the estate subject to election. If there are no surviving descendants, the Elective Share is ½ of the estate subject to election. In 2020, Maryland expanded the Elective Share, so that now all assets – even those outside of probate – are subject to election. This makes it more difficult to disinherit a spouse by keeping assets outside of probate. The Elective Share is a default rule, and spouses may contractually waive or modify their right to an Elective Share by signing a prenuptial or postnuptial agreement to that effect, in a separation agreement signed in contemplation of divorce, or any other agreement signed by the surviving spouse.
Family allowance. Under state law, the surviving spouse is entitled to receive $10,000 and minor children are entitled to receive $5,000 from the deceased person’s estate..
Inheritance Tax. One other consideration when determining how you want to slice your pie is that Maryland is one of the few states with an inheritance tax. The inheritance tax rate is 10% of the value of the gift that is left to someone by a decedent. It is only imposed on collateral heirs like a niece, nephew, or friend. Certain heirs, like parents, grandparents, children, stepchildren, and siblings are not currently taxed. When you are leaving property to persons subject to inheritance tax, you can consider how you envision that tax being paid. You can direct it to be paid by the recipient, or by your estate or trust.
We Can Help You Slice Your Pie How You Want
Celebrate National Pi(e) Day by setting up an appointment to create or update your estate plan. We can help you design a plan to ensure that your pie is divided up in a way that achieves your goals. Give us a call today!