You work for your entire life looking to accumulate assets to one day pass on to those you love. The thought of any portion of those assets going to settle expenses and liabilities is thus disheartening. Estate planning experts may offer advice on how to avoid probate and unpaid debts at your death, yet you may assume that there is no way to avoid estate taxes.
Yet is that true? In reality, your estate may not be subject to taxes at all. First off, Tennessee does not impose a local estate tax. While the federal government does levy one, there are steps you can take to limit (or even avoid) that potential tax liability.
Reviewing the federal estate tax threshold
Yet before concerning yourself with potentially limiting your federal estate tax liability, you should first whether your estate will face taxes in the first place. An estate tax exemption exists at the federal level whose threshold changes every year. According to the Internal Revenue Service, the exemption threshold for 2021 is $11.7 million. Thus, if the total taxable value of your estate comes in under that amount, it will not be subject to tax.
Taking advantage of tax portability
You may even be able to work with your spouse to effectively double your exemption amount. Estate tax portability allows married couples to pool the unused portion of their exemptions. If, as part of your estate planning, you decide to leave your entire estate to your spouse, you combine portability with another tax benefit: the unlimited marital deduction.
Leaving your estate to your spouse allows it to pass tax-free thanks to the unlimited marital deduction. This preserves your entire estate tax exemption, which your spouse can then combine with their own through portability to protect as much as $23.4 million.