A major component of estate planning in Pittsburgh is ensuring that one’s liabilities have a minimal impact on the anticipated amount of assets they will have to pass on to beneficiaries. One can typically plan to resolve a majority of their debts before their estate’s are dispersed; they may believe that there is nothing that they can do to avoid paying estate taxes. Yet a closer review of federal tax law reveals that estate taxes need not be a major concern.
Why? First off, only a small percentage of estates will actually be taxed (indeed, projections from the Internal Revenue Service show that in 2019, only around 31,700 are anticipated to be filed in the U.S.). This is because the federal government has established an estate tax threshold. If the total taxable value of one’s estate is under that threshold, then it is not subject to federal estate taxes.
Per Forbes Magazine, the federal estate tax threshold for 2019 is $11.4 million per individual. One can also exempt that amount from the federal gift tax by waiting to pass assets on at their death. Thus, one could leave up to $11.4 million to their spouse without requiring taxes to be paid on that gift. Furthermore, one could also combine their unused portion of their estate tax exemption with their spouse’s to protect up to $22.8 million. All that would be needed to take advantage of this option would be for one’s spouse to file an estate tax return electing portability the same year that they passed away.
These basic tax strategies should be included in one’s estate planning and communicated to their executor and/or spouse, as benefits like estate tax portability are not granted automatically.