Part of any solid estate plan is a strategy to minimize an estate’s liabilities. One liability that you may believe to be impossible to avoid is estate taxes, yet that is not necessarily the case.
Michigan does not levy a state estate or inheritance tax. meaning that the only tax liability you need concern yourself about is the federal estate tax. With proper planning, however, it may be possible to avoid even that.
The federal estate tax threshold
The federal government offers an estate tax exemption. As long as the total taxable value of your estate comes in under the threshold amount, it is not subject to taxes. According to information shared by the Internal Revenue Service, the threshold amount for 2020 is $11.58 million.
The value of your estate may not exceed that amount, yet you could inadvertently push the value of your spouse’s estate above it by combining whatever you leave them with the value of their separate property. Does this mean you should exclude your spouse from your estate? Of course not. In fact, you may even be able to use your marriage to protect even more for your beneficiaries.
Estate tax portability
One can roll the unused portion of their deceased spouse’s estate tax exemption into theirs through a process known as estate tax portability. The unlimited marital deduction also allows you to transfer any amount of your assets to your spouse without a tax liability. Combining these two benefits is possible. You would need to leave your entire estate to your spouse (thus preserving your estate tax exemption). They would then file an estate tax return within nine months of your death electing portability. This would allow the two of you to preserve as much as $23.16 million from taxes.