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Planning for estate taxes

As you progress into your golden years in Pennsylvania, your thought inevitably turns to the estate planning process. As many of our past clients here at O’Donnell, Weiss & Mattei, P.C. can attest to, one major part of this process is preserving as many of your personal assets as is possible to pass on to your beneficiaries.

Preserving assets includes avoiding liabilities against your estate. One expense you may think is inevitable is estate taxes, both state and federal. Yet that may not be the case. Pennsylvania does not impose an inheritance tax on spouses, but do to children (4.5%), siblings (12%), and others (15%). The other potential death tax comes from the federal level.

The federal estate tax exemption

There is a very real possibility that your estate may not be subject to a federal death tax at all. A federal estate tax exemption exists that ensures that only a small portion of estates face the potential of federal death taxes. According to information shared by the Internal Revenue Service, the exemption threshold for 2020 is $11.58 million (that amount increases to $11.7 million in 2021). Thus, if the total taxable value of your estate is less than that amount, it will not be subject to a federal death tax.

Estate tax portability

Through careful planning, you may even be able to extend that exemption amount through estate tax portability. Portability allows people to share tax benefits; in regards to estate taxes, that applies to spouses. If you were to leave your estate to your spouse, you preserve your estate tax exemption (thanks to the unlimited marital deduction). Your spouse can then claim your unused exemption amount, allowing the two of you to protect up to $23.16 million from federal death taxes.

You can find more information on the estate planning process throughout our site.

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