Planning to avoid estate taxes

As one engages in the estate planning process in earnest, they quickly notice that several liabilities may face their estates. Plans exist that can help one avoid some of them (such as working to avoid probate or settling debts before their deaths). Yet most likely accept the fact that they cannot avoid estate taxes.

Indeed, some might even believe that attempting to avoid such taxes constitutes a crime. Yet the team here at Mack & Mack Attorneys then reminds them there is a distinct difference between tax evasion and avoidance. Tax avoidance is simply taking advantage of opportunities lawmakers provide to avoid taxes). Such opportunities also exist with estate taxes.

The federal estate tax exemption

One such opportunity is through the federal estate tax exemption. Every year, federal lawmakers update this exemption threshold, allowing for several estates to avoid taxes. According to information shared by the Internal Revenue Service, the exemption amount for 2022 is $12.06 million.

South Carolina currently does not impose an estate tax on its citizens. This means that the only tax liability in relation to one’s estate would come from the federal level.

Estate tax portability

Married couples can even collaborate to protect even more assets from taxes. Portability refers to the sharing of tax benefits between eligible parties. In the case of estate taxes, one may claim the unused portion of their deceased spouse’s estate tax exemption.

To take full advantage of this opportunity, one should plan to leave their entire estate to their spouse upon their death. This allows all of those funds to pass tax-free thanks to the unlimited marital deduction. This preserves their entire estate tax exemption. The surviving spouse can then claim that entire $12.06 million exemption (and combine it with their own) by filing an estate tax return electing portability within nine months of the other’s death.