Wills vs. Trusts in Maryland: A Guideline for Effective Estate Planning

Estate planning can be a complex web of legalities and decisions, and one of the most fundamental choices is deciding between a will and a trust. 

Maryland residents are often caught in the balance, weighing the pros and cons of each in the context of their own financial, family, and life situations. Understanding the specifics of wills and trusts in the context of Maryland’s laws is crucial for making informed decisions that will shape the legacy you leave behind. In this comprehensive guide tailored to Maryland’s inhabitants, we’ll dissect wills and trusts, exploring how they function within the intricate landscape of estate planning.

 

 

The Role of Wills in Maryland Estate Planning

Understanding the Basics

A will, also known as a last will and testament, is a foundational document in estate planning. It allows individuals to outline how they would like their assets and property to be distributed after their death. In Maryland, a will can also provide instructions on guardianship for minor children and the caretaking of pets.

The Requirements

To create a valid will in Maryland, several key requirements must be met:

• The testator, or the person creating the will, must be of sound mind and body.
• The will must be in writing.
• It must be signed by the testator or by another individual at the testator’s direction and in their presence.
• The signing must also be witnessed by two competent individuals who must also sign the will in the presence of the testator and each other.

It is worth noting that holographic wills, or wills entirely handwritten and signed by the testator, are not recognized under Maryland law.

Pros and Cons of Wills

Advantages of wills include:

• Simplicity in creation and revision.
• Cost-effectiveness compared to trusts.
• The ability to nominate guardians for minor children.

However, wills also come with limitations:

• They must go through the probate process, which can be lengthy and costly.
• They are public documents once they go through probate.

The Trust Factor in Maryland Estate Planning

Trust Fundamentals

A trust is a legal arrangement where a trustee holds the legal title to property for another person, called a beneficiary. In Maryland, a trust can be revocable or irrevocable and can serve multiple purposes, including avoiding probate, minimizing estate taxes, and providing ongoing management of trust assets.

Setting Up a Trust in Maryland

The process of establishing a trust involves:

• Deciding on a trustee who will manage the trust assets.
• Identifying the trust’s beneficiaries.
• Funding the trust by transferring assets into the trust’s name.
• Drafting a trust document, specifying the trust’s terms and conditions.

The Upside of Trusts

Trusts offer several significant benefits, including:

• Asset protection for beneficiaries.
• The ability to provide for minor children or individuals with special needs.
• Privacy, as trusts don’t go through probate and are not public record.

Weighing the Trust Disadvantages

The main drawbacks of trusts are:

• Complexity in creation and administration.
• Higher upfront costs than wills.
• The need to transfer ownership of assets into the trust.

Maryland-Specific Considerations

Establishing Residency

You must be a resident of the state to create a valid will or trust under Maryland law. Non-residents may have wills recognized in Maryland if they could have been legally created in the state or if they meet specific military and federal exceptions.

Probate in Maryland

Maryland’s probate process can be complex. It involves validating wills, appraising assets, paying debts, and distributing property. Maryland law provides for an expedited probate process for small estates valued at $30,000 or less, with certain exceptions.

Maryland Estate Taxes

Wills and trusts can play a significant role in minimizing these taxes. Maryland is one of the few states that impose both estate and inheritance taxes. For 2022, the estate tax exemption is $5.93 million, and the inheritance tax ranges from 0% to 10% depending on the relationship of the transferee to the decedent.

Trusts and Long-Term Care Planning

Special needs trusts and other types of trusts are essential tools for planning for long-term care and Medicaid eligibility. Trustees of these trusts must consider complex Medicaid rules, and it’s crucial to work with an attorney well-versed in Maryland’s specific laws on Medicaid trusts.

Making Your Decision

Both wills and trusts are powerful tools in estate planning, serving different purposes based on individual needs. The decision on which to use—or whether to use both—depends on various factors such as the size of your estate, the nature of your assets, and your goals for your estate.

When deciding between a will and a trust, consider consulting with an experienced estate planning attorney in Maryland. A legal professional can help you understand the intricacies of Maryland estate law, ensure that your documents are drafted correctly, and provide you with peace of mind that your wishes will be carried out effectively.

 

Conclusion

Your legacy is a reflection of your life’s work and your love for those you leave behind. By understanding the nuances of wills and trusts in Maryland—both legally and practically—you can design an estate plan that honors your intentions and keeps your hard-earned assets secure. Take the time to weigh your options carefully, and enlist the help of a knowledgeable estate planning attorney to guide you through the process. Your legacy is worth the effort, and the right plan can be a lasting gift to your heirs and beneficiaries.