One of the goals of the estate planning process is to help you optimize those opportunities to preserve assets for the benefit of your heirs in Texas. Yet the assumption is that no amount of planning offers the chance to avoid one inevitable expense: estate taxes.
Yet many misconceptions exist regarding estate taxes. First off, your estate will not be subject to a state estate tax (nor will your beneficiaries face the potential of an inheritance tax). This means that the only tax liability your estate may face comes from the federal level. With the right estate plan in place, however, you may be able to mitigate that expense as well.
Reviewing the federal estate tax threshold
Implementing such a plan first requires an understanding of the federal estate tax exemption. If the total taxable value of your estate comes in under the exemption amount, it will not be subject to tax. According to information shared by the Internal Revenue Service, the estate tax exemption threshold for 2021 is $11.7 million. This elevated amount means that very few estates will actually face a tax liability.
Taking advantage of estate tax portability
Even if your personal wealth approaches the exemption amount, there still may be a way for you to use the federal estate tax exemption to your advantage. Portability allows you and your spouse to combine your exemption amounts.
Here is how: the unlimited marital deduction allows you to pass an unlimited amount to your spouse free of taxes. Thus, if you leave your entire estate to your spouse, you preserve your full estate tax exemption. Your spouse can then claim that unused exemption and combine it with their own (thus protecting up to $23.4 million). To do this, they simply need to file an estate tax exemption electing portability within nine months of your death.