Creating And Protecting Your Legacy

Taking advantage of estate tax portability

On Behalf of | Mar 1, 2021 | Estate Planning |

Previous posts on this blog touched upon the fact that estate taxes may or may not be a concern to Florida residents. While the state does not impose a local estate tax, the federal government does levy a tax against estates exceeding a certain threshold. Per the website, that amount for 2021 is $11.7 million. 

Another fact also noted was that the estate tax threshold doubles for married couples. This is due to a process known as portability. This process does not occur automatically, however, thus prompting the need for one who could potentially face an estate tax burden to account for it in their estate plans. 

Reviewing the federal estate tax exemption

Estate tax portability occurs in conjunction with the federal estate tax exemption. That exemption covers one up to the threshold amount. Their spouse can then claim the unused portion of their estate tax exemption and combine it with their own. To take full advantage of this benefit, one must also plan on utilizing another tax relief option: the unlimited marital deduction. 

Thanks to this deduction, one can pass an unlimited amount to their spouse without it being subject to tax. Should leave their entire estate to their spouse, that amount would not only pass on tax-free, but it would also preserve one’s entire estate tax exemption. Their spouse can then claim that exemption and combine it with their own, effectively protecting $23.4 million from taxes. 

Electing portability

To do this, the Internal Revenue Service points out that one must file an estate tax return within nine months of their spouse’s death electing portability. If they fail to do this, then their spouse leaving their assets to them could potentially push the amount of their estate above the threshold (making it subject to tax when it might otherwise would not have been).