A recent post on this blog detailed the benefit that gifting can provide to your estate plans. Yet at face value, that might seem counterintuitive; would parsing out gifts not deplete the amount that you have to pass on to your heirs?
Many come to us here at Marcus, Gould & Sussman, LLP with this very question. Our answer often surprises them (as it may you): in this particular regard, your focus should not be on giving assets away, buit rather limiting your potential estate tax liability.
The federal estate tax exemption threshold
To understand how gifting can effect estate taxes, you need to first know about the federal estate tax exemption threshold. Per the Internal Revenue Service, that treshold amount is $11.58 million for 2020. This means that as long as the total taxable value of your estate comes in under the threshold amount, your estate will not be subject to federal estate taxes (leaving you only having to worry about New York’s local estate tax).
Estate tax portability
Yet what if you could effectively double that exemption amount? That is where gifting comes in. Monetary gifts often qualify you for tax breaks. Specifically in regards to estate taxes, the tax benefit you want to take advantage of is the unlimited marital deduction. This allows you to give an unlimited amount to your spouse without it being subject to tax.
Another tax benefit (estate tax portability) lets your spouse combine your unused portion of the estate tax exemption referenced earlier. If you instead utilze the unlimited marital deducation upon your death by leaving your entire estate to your spouse, you preserve your entire exemption amount. Your spouse can then claim that amount through portability.
You can find more information about optimizing your estate by continuing to explore our site.