The whole point of the estate planning process is to maximize the potential assets and properties that you have to pass on to your heirs in Lynchburg.
There are several tips and tricks you can take advantage of to avoid any unnecessary costs that could lessen the overall amount of your estate. Employing these strategies may seem to some to be a moot point, however, if ultimately the government is going to levy taxes against your estate.
Understanding estate taxes
Virginia does not have a local estate tax. It also does not have an inheritance tax, which means none of your beneficiaries have to pay taxes on whatever they receive from your estate.
There is, however, a federal estate tax. The Center on Budget and Policy Priorities states that the effective tax rate for the estate tax is 17%, which may result in a significant hit to your estate’s overall value.
However, there is a good chance that you may not have to pay estate taxes at all. The federal government has set an estate tax threshold. If the total taxable value of your estate comes in under the threshold amount, it is not subject to tax.
Per the Internal Revenue Service, the amount for 2019 is $11.4 million. This amount means that less than 1% of estates actually are subject to taxation.
Estate tax portability
There is also a provision in the law that allows you to combine the unused portion of your estate tax exemption with that of your spouse. You would leave him or her all your assets upon your death, which are not taxed due to unlimited marital deduction, and then your spouse could claim the entire $11.4 million exemption. That, combined with your spouse’s own exemption, could protect as much as $22.8 million from tax.
To do this, your spouse simply needs to elect estate tax portability by filing an estate tax return the year that you die, or within nine months of your death. Your estate instruments should emphasize the importance of doing this, as a failure to do so could prove costly. Even if the total amount of your individual estate was below the threshold, combining your assets could push your spouse’s above it.