Experts recommend that people in Rocky Mount begin the estate planning process early on in their adult lives. Doing so provides one with ample time to optimize their planning efforts towards preserving assets for their beneficiaries. That is what makes the prospect of losing a certain portion of those assets to taxes all the more disheartening.

Yet many fail to realize that not every estate will be subject to tax. Plus, for those that are, proper planning can help to reduce their estate tax liability (or even avoid it altogether).

The federal estate tax threshold

The federal government ha set an estate tax threshold which allows certain estates to be exempt from having to pay tax. If the total taxable value of one’s estate is under that amount, the estate is not subject to taxes (North Carolina does not assess a separate state estate tax). According to information shared by Forbes Magazine, the threshold amount for 2020 is $11.58 million.

Estate tax portability

By combining the benefits of the estate tax exemption with another federal tax allowance (the unlimited marital deduction), one might be able to protect even more than the threshold amount from tax. The unlimited marital deduction exempts transfers between spouses from taxation. Thus, if one leaves the entirety of their estate to their spouse, their spouse will not owe taxes on it. More importantly, they preserve their entire estate tax exemption amount. The surviving spouse can then combine the decedent’s under exemption amount with their own by electing estate tax portability. Per the Internal Revenue Service, this can happen by filing an estate tax return electing portability within nine months of the decedent’s death. Together this allows a married couple to protect $23.16 million from having taxes taken out before its dispersal to their heirs.