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Protecting Estates.
Protecting Legacies.

Understanding estate tax portability

The deeper people in California get into the estate planning process, the more they recognize that there are a number of opportunities available to them to avoid certain expenses and retain assets for their beneficiaries. Examples of this include making plans to avoid probate and to settle outstanding debts prior to one’s passing.

Estate taxes, however, seem like one liability one cannot avoid. Yet is that true? California ranks among the many states that do not impose an estate tax on local residents. This leaves the only estate tax liability one needs to worry about the one coming from the federal level. With the right estate plan in place, one might even be able to mitigate that liability, as well.

Reviewing the federal estate tax exemption

The federal government offers an estate tax liability that allows many estates (indeed, a majority) to escape a tax burden. Per the website SmartAsset.com, for 2021, the federal estate tax exemption is $11.7 million. Thus, those estates whose total taxable value comes in under that amount will not be subject to tax.

Taking advantage of portability

The option of estate tax portability also exists (allowing married couples to extend their exemption amounts even further). According to the Internal Revenue Service, one may be able to claim their deceased spouse’s unused exemption by filing an estate tax return electing portability within nine months of their death. One can use this benefit to protect as much as $23.4 million from taxes.

To do this, one must plan to leave their estate to their spouse. This preserves their entire estate tax exemption by instead allowing those funds to pass tax-free thanks to the unlimited marital deduction. Their spouse then claims their entire $11.7 million exemption and combines it with their own.