Understanding estate tax portability

Understanding estate tax portability

| May 6, 2019 | Wills And Trusts |

As people in Baton Rouge begin the process of creating a will, they may think that they must earmark a portion of their assets to go towards paying estate taxes. This no doubt comes from the assumption that all estates are subject to tax (either federal or state). Yet before they resign themselves to the notion that some of what they had hoped to leave their beneficiaries will inevitably be eaten up by taxes, they should know that Louisiana does not levy an estate tax, and few estates actually are required to pay any federal tax. 

This is because the federal government has established an estate tax exemption. This means that those estates whose total taxable value falls below the established threshold amount will not be taxed. Per Forbes Magazine, the federal threshold for 2019 is $11.4 million. Yet will a little bit of strategic planning, some may be able to protect twice that amount from estate taxes. 

The federal government has also authorized an unlimited marital deduction, meaning that one can gift their spouse an unlimited amount without that gift being taxed. Therefore, a person could simply gift the entire amount of their estate to their spouse without having to use their estate tax exemption. It should be remembered, however, that doing this could push the total value of the surviving spouse’s estate above the federal threshold and make it subject to tax. 

This is where estate tax portability comes in. Information shared by the Internal Revenue Service shows that by filing an estate tax return claiming portability within nine months of their spouse’s death, one can then assume the unused portion of their spouse’s estate tax exemption. This allows a married a couple to protect up to $22.8 million from being taxed.