Many in Los Angeles may subscribe to the idea that there are only two inevitabilities in life: death and taxes. Yet few may view those as being associated in any way. However, when you die, your estate could indeed be subject to a federal estate tax. This may come as extremely disheartening news given the effort you put into building your estate for the express purpose of it benefitting your heirs when you die. However, you may not need to worry; with the proper planning, you may be able to avoid the estate tax altogether.
What is more, many do not understand that most estates will not even come close to having to pay an estate tax. Estate tax reform was included in the federal tax bill signed into law late last year. Although it stopped short of the President’s expressed intentions of abolishing the tax altogether, Forbes Magazine points out that it did succeed in effectively doubling the estate tax threshold from $5.49 million in 2017 to $11.2 million in 2018. What this means is that you can pass on any amount under that to another without it being taxed.
What if, however, you gifting the total value of your estate to your spouse then raises the value of his or her estate above the $11.2 million exemption amount? He or she can combine your exemption amount with his or hers by electing portability. This is done by filing an estate tax return the same year that you die and selecting this option. By doing so, your spouse can then protect as much as $22.4 million from being taxed. Such a benefit could pay huge dividends for your future generations.