Planning for potential estate taxes

| Jan 11, 2021 | Estate Planning |

As you immerse yourself in the estate planning process in Florida, one important element to consider is preparing for the potential of taxes. Most people come to us here at the Law Office of Cheryl Bucker, P.A. assuming that both the local and federal government will take taxes from their estates. Yet that may not necessarily be the case.

For example, the state of Florida does not impose an estate tax on local residents. This leaves you only facing the potential of federal estate taxes. You may even be able to avoid (or at least minimize) this expense with proper planning.

Understanding the federal estate tax exemption

The federal government sets an estate tax exemption annually. Provided that the total taxable value of your estate comes in under the tax exemption threshold, it will not be subject to tax. Per the Internal Revenue Service, the exemption threshold for 2021 is $11.7 million.

Portability refers to the sharing of tax benefits between eligible parties. In the case of federal estate taxes, you can share your exemption amount with your spouse. This process is not automatic, however, and you must plan for it to avoid unnecessarily subjecting your spouse’s estate to taxes.

Taking advantage of portability

To fully take advantage of estate tax portability, you need to plan to leave your entire estate to your spouse upon your death. This preserves your entire estate tax exemption by instead utilizing the unlimited marital deduction (which allows spouses to pass an unlimited amount between each other tax-free). Your spouse then needs to file an estate tax return within nine months of your death electing portability. This allows them to claim your unused exemption and combine it with their own.