As you begin the estate planning process, a nagging thought may linger in the back of your mind: despite your many efforts to preserve assets to benefit your heirs in the Bay Area and beyond, the government will have its inevitably impact on your estate through taxes.
That the concern that many of those that come to see us here at Holder Law share. Yet is this concern valid? You may discover that estate taxes are not the unavoidable trap that many believe them to be.
Preparing for your potential estate tax liability
The first thing you need to understand is that California does not levy its one estate tax. This means that the only tax liability facing your estate comes from the federal government. With proper planning, you might even avoid that. The federal government has established an estate tax exemption that allows you to exempt a certain amount of assets and value in properties. According to information shared by the Internal Revenue Service, the estate tax exemption threshold amount for 2020 is $11.58 million. If the total taxable value of your estate is less than that amount, it will not face any taxes.
Estate tax portability
Together, you and your spouse can extend that exemption amount even further. Estate tax portability allows married couples to combine their unused exemption amounts. By leaving your entire estate to your spouse, you take advantage of the unlimited marital deduction (which allows tax-free unlimited transfers between spouses). This preserves your entire estate tax exemption. Your spouse then must file an estate tax return the year you die electing portability. This allows them to exempt up to $23.16 million in taxes.
You can find more information on estate planning strategies throughout our site.