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Planning for estate taxes

One important element of the estate planning process is optimizing those opportunities to preserve assets for one’s beneficiaries. One area where Delaware residents may not believe this to be possible, however, is estate taxes.

Indeed, many in the state may have already resigned themselves to the prospect of having to pay them. Yet they may not have to. According to information shared through Delaware.gov, local lawmakers repealed both the state’s inheritance and estate taxes in 1999 and 2018, respectively. This leaves federal estate taxes the only potential estate-related tax liability facing local residents.

Reviewing the federal estate tax exemption

With proper planning, one might even be able to avoid that. The federal government offers an estate tax exemption that allows a majority of citizens’ estates to avoid being subject to taxes. Per the Internal Revenue Service, the exemption threshold for 2021 is $11.7 million.

A married couple can work together to extend that exemption amount even further. Through portability (the process of sharing tax benefits between eligible parties), they can protect as much as $23.4 million from federal estate taxes.

Taking advantage of portability

To do this, they need to plan to take advantage of another tax benefit: the unlimited marital deduction. This allows one to pass an unlimited amount to their spouse free of taxes. By leaving one’s entire estate to their spouse, then, they preserve their entire estate tax exemption. Their spouse can then claim that unused exemption by filing an estate tax return within nine months of their death electing portability.

One should remember that the process of portability is not automatic. Without their spouse’s officially electing portability, the amount those spouses receive could push the value of their estate above the exemption threshold (making them subject to taxes when they otherwise might not have been).

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