As you work your way through the estate planning process in Gettysburg, you likely notice that there will be opportunities to reduce liabilities against your estate. Limiting estate expenses has been a recommended strategy for several years, yet like most of those that have come to us here at Wolfe, Rice & Quinn, LLC, you might assume that taxes are an expense you cannot avoid.
Yet that may not be the case. Pennsylvania does not levy a state estate tax against its residents, which means that the only tax liability facing your estate comes from the federal government. With astute planning, you might even be able to limit that expense.
Understanding the estate tax threshold
Your estate may not even be subject to federal estate taxes in the first place. An estate tax exemption exists which affords you the opportunity to potentially avoid taxes. If the total taxable value of your estate comes in under the federal estate tax exemption amount (which, according to the Internal Revenue Service, is $11.58 million for 2020), then it will not even be subject to taxes. This elevated exemption amount means that very few estates actually end up owing taxes every year.
Taking advantage of estate tax portability
Married couples can combine their exemption amounts to protect even more than the federal threshold allows. This is possible through both estate tax portability and the unlimited marital deduction. The latter tax benefit allows you to pass an unlimited amount to your spouse without it being subject to tax. By leaving your entire estate to your spouse, you preserve your entire exemption. Your spouse can then claim that exemption (by filing an estate tax return within nine months of your death) and combine it with their own to protect up to $23.16 million.
You can discover more information on optimizing estate planning strategies throughout our site.