So much of the estate planning process in Pittsburgh focuses on the distribution of your individual wealth; little attention is often paid toward potential liabilities that may come with the distribution of your assets (such as taxes). Perhaps this is because you automatically assume that Uncle Sam will step in to take his share when the time comes. Yet just as is the case with so many other areas of your financial life, there are legitimate tax avoidance strategies that you can employ on creating your estate plan that help to ensure that all of the assets that you have spent so much effort in accumulating can pass almost entirely on to your heirs.
The first thing to understand is that not all estates will face a federal tax liability (indeed, most will not). This is because according to information shared by the Internal Revenue Service, there is a federal estate tax threshold (which, for 2020, is set at $11.58 million). If the total taxable amount of your estate is less than that amount, it will not be subject to federal taxes. You should be careful, however, if your plan is to leave the entirety of your estate to your spouse, as doing so could inadvertently push the value of their estate above the threshold.
The unlimited marital deduction allows you to pass any amount on to your spouse tax-free (without having it go against your estate tax exemption). They can then combine the unused portion of your exemption with theirs (protecting up to $23.16 million). Yet to do so, they have to elect estate tax portability by filing a return within nine months of your death. Leaving your assets to your spouse also lets you avoid Pennsylvania’s 4.5% inheritance tax.