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Federal estate tax avoidance strategies

On Behalf of | Oct 13, 2020 | Estate Planning | 0 comments

The hope os many in Florida engaged in the estate planning process is that their plans will help limit the liabilities levied against their estates once they are gone. Yet many might assume that no matter one’s plans, their estate will still be subject to tax.

Yet that may not necessarily be the case. According to the Florida Department of Revenue, the state does not impose an estate tax on the state’s residents. This means that one’s estate plans need only to account for the potential of federal estate taxes.

The federal estate tax exemption

Yet one might even plan to limit their potential federal estate tax liability (or eliminate such a potential altogether). Every year, the federal government sets an estate tax threshold. Per The Motley Fool, that amount for 2020 is $11.58 million. This elevated amount means that many estates will not end up being subject to tax (provided that their total taxable value comes in under that amount).

The federal government has also provided a method through which married couples can extend their collective estate tax exemption. This is possible through a process known as estate tax portability. By claiming portability, one can claim the unused portion of their deceased spouse’s estate tax exemption.

Electing portability

This process is not automatic, however, and one must have a plan in place to take advantage of it. To do so, one must leave instructions for their spouse to file an estate tax return (which, per the Internal Revenue Service, one must file within nine months of their spouse’s death) electing portability. A failure to do so could inadvertently push the value of the spouse’s estate above the exemption threshold (which leaves it subject to an 18%-40% tax rate).