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Planning for the potential of estate

| Jan 22, 2021 | Estate planning |

One of the more important aspects of the estate planning process is for those engaged in it taking advantage of those opportunities available to preserve assets for their beneficiaries in Texas. Yet many people may resign themselves to the notion that they cannot avoid taxes.

First and foremost, one should understand that Texas does not impose an estate tax on its residents. That means that the only potential tax liability one from the state may face come from the federal level. With proper planning, one might even be able to mitigate (or even avoid) that expense altogether.

Understanding the federal estate tax threshold

The federal government sets an estate tax threshold that lawmakers update annually. According to Forbes Magazine, the threshold amount for that exemption for 2021 is $11.7 million, meaning that those estates whose total taxable value comes in under that amount will not be subject to tax. This high amount means that relatively few estates will actually owe taxes. Yet even those whose estates may approach that amount may be able to avoid taxes through a process known as estate tax portability.

Taking advantage of portability

Portability refers to the sharing of tax benefits between eligible individuals. In the case of estate taxes, one can claim the unused portion of their deceased spouse’s exemption amount. To take full advantage of this benefit, spouses must plan to leave all their assets to their spouses upon their deaths. This takes advantage of the unlimited marital deduction (which allows such a transfer to occur tax-free while also preserving one’s entire estate tax exemption). Per the Internal Revenue Service, the surviving spouse must then file an estate tax return within nine months of their spouse’s death electing portability. This effectively allows a couple to extend the estate tax exemption amount to $23.4 million.