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Can you limit your estate tax liability?

On Behalf of | Jul 6, 2020 | Firm News |

When working through the estate planning process, the last thing that you want to think about is that after spending a lifetime accruing assets in Salt Lake City for the benefit of your potential heirs much of that having to go back to the government in taxes. Yet as many say, death and taxes are the two inevitabilities in life, right? 

While that may be true, that does not mean that the two are inextricably linked. Indeed, the state of Utah does not impose a state estate tax. With proper estate planning, you may even limit your federal estate tax liability as well (or avoid it altogether). 

The federal estate tax threshold 

The federal government has established an estate tax threshold that allows many estates to avoid being subject to taxes. Per the Internal Revenue Service, that amount for 2020 is $11.58 million. This high amount means that in reality, very few estates will find themselves facing federal estate taxes. Yet even if yours approaches that range, there may be a way to extend that extension amount by combining your exemption with that of your spouse. 

Estate tax portability 

This requires careful planning, however, as a lack of it could potentially allow your estate to avoid taxes yet cause that of your spouse to become subject to them. By utilizing the unlimited marital deduction to pass your assets on to your spouse (without them being subject to tax), you preserve your entire estate tax exemption. Your spouse must then file an estate tax return electing portability the same fiscal year that you die (as portability does not occur automatically). Doing so allows the two of you to protect as much as $23.16 million in estate assets.