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Preserving estate assets from federal taxes

On Behalf of | Oct 29, 2021 | Estate Planning |

Estate planning is a complex process. As you progress further into it, you quickly discover that with those complexities comes the opportunity to preserve assets to pass on to your beneficiaries in Utah. Yet you might not list avoiding federal estate taxes among them.

However, many of our past clients here at Scalley Reading Bates Hansen & Rasmussen, P.C. may be able to attest to the fact that this is not true. Tax avoidance (unlike tax evasion) is perfectly legal, and knowing how to limit your federal estate tax liability helps ensure you pass as much on to your loved one as possible.

Reviewing the federal estate tax exemption

First and foremost, you should know that your estate may not be subject to federal taxes at all. This is due to the existence of a federal estate tax exemption. The Internal Revenue Service reports that for 2021, the threshold for this exemption stands at $11.7 million.

Understanding estate tax portability

You may even be able to increase that already elevated exemption amount even further through the process of portability. Tax portability refers to the sharing of tax benefits between eligible parties. According to the American College of Trust and Estate Counsel, in reference to estate taxes, portability means your and your spouse combining your exemption amounts (thus protecting as much as $23.4 million from taxes).

To do this, you need to plan to leave your estate to your spouse upon your death. Tax law allows that amount to pass tax-free thanks to the unlimited marital deduction. This preserves your entire federal estate tax exemption. Your spouse then claims that unused exemption by filing an estate tax return following your death electing portability.

You can find more information on planning for estate taxes on our site.