Past posts on this blog described scenarios where one must file an estate tax return. Among these situations is when an estate is subject to estate tax. Yet these posts also detail the fact that if the total taxable value of your estate comes in under the federal estate tax exemption threshold, the government does not impose a tax liability.
Estate tax portability permits married couples to share their estate tax benefits. You can your spouse can take advantage of this process to effectively double your estate tax exemption amount. Yet as we here at Howard, Hardyman & Diverde, LLP point out to many prospective clients, doing so requires careful planning.
Optimizing estate tax portability
As previously detailed on the blog, the federal estate tax exemption threshold for 2021 is $11.7 million. Your spouse can claim whatever amount remains between that amount and the total taxable value of your individual estate. Yet another tax benefit (the unlimited marital deduction) allows you to preserve your entire exemption amount. Through the unlimited marital deduction, you can pass an unlimited amount on to your spouse tax-free. Thus, if you leave the entirety of your estate to your spouse upon your death, that amount passes to them without being subject to tax while also not touching your estate tax exemption.
Electing portability through an estate tax return
Doing this allows your ex-spouse to increase their estate tax exemption to $23.4 million. This benefit is not automatic, however. According to the Internal Revenue Service, your spouse needs to file an estate tax return within nine months of your death electing portability. If not, you leaving your entire estate to them could inadvertently push the value of your estate above the exemption threshold.
You can find more information on optimizing your estate planning throughout our site.