Planning for The Potential of Estate Taxes
As you get more involved in the estate planning process in Washington, you inevitably start to notice opportunities to preserve assets for your beneficiaries. Plans to avoid probate to settle liabilities prior to your death fall among these. Yet one expense you may think you cannot avoid is estate taxes.
Yet that may not be the case. While clients who come to us here at Gierth-Eddy Law Offices PLLC understand that both the state of Washington and the federal government impose estate taxes on local residents, that does not necessarily mean that you will owe them (or if you, that you cannot lessen that tax liability).
Understanding Estate Tax Exemptions
Both Washington state and the federal government offer estate tax exemptions. According to the Washington State Department of Revenue, the state exemption amount for 2021 is $2.193 million; per the Internal Revenue Service, the federal exemption amount for 2021 is $11.7 million. That means that if the total taxable value of your estate comes in under that amount, it will not be subject to tax.
Taking Advantage of Estate Tax Portability
At the federal level, you and your spouse can also take advantage of a process known as “estate tax portability.” (The state of Washington does not offer portability). This allows you and your spouse to essentially combine your estate tax exemptions by one claim the unused portion of the others.
Proper planning may indeed allow you to effectively extend your federal estate tax exemption to $23.4 million. Here is how: if you leave your entire estate to your spouse, that amount passes tax-free thanks to the unlimited marital deduction. Per the IRS, your spouse then claims your unused estate tax exemption by filing an estate tax return electing portability within nine months of your death.
You can find more information on estate tax planning strategies on our site.