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Optimizing estate tax planning strategies

| Apr 16, 2021 | Estate Planning |

The further along one gets in the estate planning process in Florida, one of its primary objectives becomes clear: minimizing liabilities against the estate. Crafting an estate strategy to avoid probate and pay off debts before one’s passing can help accomplish this. Most, however, may resign themselves to the notion that they cannot avoid estate taxes.

Yet that may not be the case. For one, Florida does not assess an estate tax. On top of that, there are strategies one can implement to help minimize their federal estate tax liability (or even avoid it altogether).

The federal estate tax threshold

The linchpin of these strategies is the federal estate tax exemption. Those estates whose total taxable value comes in under this amount will not be subject to tax. Per the website, the estate tax exemption threshold for 2021 is $11.7 million. This high threshold amount means that relatively few estates end up having to pay taxes at all.

Married couples whose estates may be above the threshold amount also have a way to collectively extend their individual exemptions even further. This is due to estate portability. Through portability, eligible parties share tax benefits. In the case of estate taxes, one can claim their deceased spouse’s unused exemption amount. Through careful planning, a couple may preserve the entire exemption of the first to pass one, allowing the other to effectively double their exemption to $23.4 million.

The portability process

To do this, the first to die must leave their entire estate to the other. That allows those funds to pass tax-free (thanks to the unlimited marital deduction) while preserving their estate tax exemption. According to the Internal Revenue Service, the surviving spouse must then file an estate tax return within nine months of the other’s death electing portability.