Personalized Representation. Honest Advice.

Photo of Kelly J. McDonald & Katie L. Warner

Planning for the potential of estate taxes

On Behalf of | May 11, 2021 | Estate Planning |

One of the common themes of estate planning is looking for opportunities to preserve assets for beneficiaries. Yet despite the many options one can implement when looking to optimize their estate plans, many may resign themselves to the thought that they cannot avoid estate taxes.  

Yet that may not be the case. Arizona does not impose an estate tax on its residents, meaning that the only tax liability a local resident’s estate may face comes from the federal level. One can plan to mitigate the potential impact of that liability, as well.  

Which estates will be subject to tax?

The federal government sets an estate tax exemption threshold annually. If the total taxable value of one’s estate comes in below this amount, it will not be subject to tax. According to the website, the exemption threshold for 2021 is $11.76 million. This high amount means that ultimately only a small portion of estates must pay tax.  

One might even be able to extend their exemptions even further by structuring their estate plan to combine their exemption with that of their spouse. 

Estate tax portability

The process of portability refers to the sharing of tax benefits between eligible parties. For the purposes of estate taxes, spouses can essentially share their exemption amounts. With the right plan, a couple might even be able to double one’s exemption.  

To do this, one must plan to leave their entire estate to their spouse upon their death. This allows those assets to pass tax-free thanks to the unlimited marital deduction. This also preserves their entire estate tax exemption. Per the Internal Revenue Service, their spouse can then claim their unused exemption by filing an estate tax return within nine months of their death.