The idea that you might lose a substantial part of your estate to the estate tax is one of the main reasons why people in Florida seek out an estate planning attorney for assistance. While no one wants to have to pay a tax if they can avoid it, the reality surrounding the federal estate tax is that it does not apply to most people.
On the other hand, if you are one of the people that might be affected by the tax, there are strategies you can use to reduce, and potentially eliminate, how much your estate has to pay. Today we are going to take a look at some basic, yet effective, strategies you might be able to use.
Estate Tax Planning Tip 1: Start Knowing the Financial Basics
You cannot start estate tax planning until you know what you need to worry about. To begin with, there is no state-level estate tax in Florida, though there is a federal tax, but the federal tax only applies to estates worth more than $5.43 million. So, if you die in 2015 and leave an estate worth less than $5.43 million, your estate won’t pay any estate taxes.
This is why financial planning is so vital when it comes to estate taxes. A good financial plan not only tells you what you have, but can also tell you what you are likely to have in the future. Even if you might not need to worry about estate taxes today, you might need to develop a plan as your worth increases.
Estate Tax Planning Tip 2: Maximize Portability
Married couple can effectively combine their estate tax exemptions because of a protection known as portability. With portability, a surviving spouse can use any unused portion of a deceased spouse’s exemption, adding it to his or her own to increase the amount of property exempted from estate taxes.
Let’s say, for example, that you and your spouse own all of your property as joint owners, with assets totaling $10 million. When your spouse dies, he/she leaves behind no estate, and you become the sole owner of all of your property. What happens when you die?
If you leave behind $10 million of assets, your estate would normally be subject to estate taxes. However, because your spouse died without using any of his/her exemption, you can effectively add the unused exemption amount to yours. So, since both of you have an exemption of $5.43 million, you now have a total exemption of $10.86 million, and your estate won’t have to pay taxes.
More Advanced Estate Tax Tips
These two basic steps are often enough to allow people to avoid estate taxes, but they are not always sufficient. We will continue our discussion of estate tax planning next week by looking at more advanced tips you can use.