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Preparing for potential estate taxes

On Behalf of | Oct 5, 2021 | Estate Administration

As you immerse yourself in the estate planning process in Pennsylvania, your thoughts inevitably turn to take advantage of those opportunities to minimize the liabilities facing your estate in order to preserve as much of your personal wealth as possible to pass on to your beneficiaries.

Many with this exact same desire come to see us here at France Paskey, P.C. concerned that one liability they cannot avoid is estate taxes. Yet is this true? Pennsylvania does not impose an estate tax at the state level, meaning that the only potential tax burden facing your estate comes from the federal government. Fortunately, there are methods to minimize that potential expense as well.

Reviewing the federal estate tax threshold

Ultimately, very few people actually end up owing federal estate taxes. This is due to the federal government setting an estate tax exemption (whose threshold it then updates annually) According to information shared by the Internal Revenue Service, the threshold for 2021 is $11.7. What this means is that as long as the total taxable value of your estate comes in under that amount, it will not be subject to tax.

Understanding estate tax portability

Keep in mind, however, that your estate tax exemption refers to your individual estate. The combined estates of you and your spouse may exceed that amount. Yet estate tax portability allows the two of you to combine your exemption amounts to protect as much as $23.4 million. To do this, you would need to leave your estate to your spouse (which preserves your exemption while still passing tax-free thanks to the unlimited marital deduction). They would then file an estate tax return the same year you die electing portability (thus claiming your unused exemption).

You can find more information on planning for estate taxes on our site.