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How should you prepare for estate taxes?

On Behalf of | May 19, 2021 | Estate Planning |

A common assumption amongst many of those engaged in the estate planning process in Florida is that there is nothing one can do to avoid the potential for estate taxes. Yet if you share the same belief, you should know that may not be the case.

First and foremost, Florida does not impose a local estate tax on residents (neither does it require an inheritance tax). This leaves the only potential tax liability facing your estate the one that comes from the federal government. You can also implement plans to potentially mitigate that liability as well (or perhaps avoid it altogether).

The federal estate tax threshold

Thanks to the federal estate tax exemption, very few estates actually end up being subject to tax. According to the Internal Revenue Service, the estate tax threshold for 2021 is $11.7 million. As long as the total taxable value of your estate comes in under that amount, estate taxes will not be a concern.

Your individual estate may be below the threshold, yet what about yours and your spouse’s combined assets? You leaving your estate to your spouse could potentially push the value of their estate above the exemption threshold. Not to worry; there are steps you can take to avoid this.

How to elect portability

Estate tax portability allows married couples to combine their exemptions. Thus, if you leave your entire estate to your spouse, that amount passes tax-free due to the unlimited marital deduction. This also preserves your entire estate tax exemption. Your spouse then needs to file an estate tax return within nine months of your death. This combines your unused exemption with their own, effectively protecting $23.4 million from taxes.