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Avoiding estate tax liability

When people in Cranberry Township start putting their estate plans together, the first topic they may believe needs to be addressed is allocating funds to pay estate taxes. This is wise thinking, as their certainly is the possibility that one’s estate may be taxed (and those taxes must be paid from the estate’s assets). Yet federal regulations have been modified in recent years to help ease the burden of taxes from many hoping to leave assets for their beneficiaries. Indeed, according to information shared by the Internal Revenue Service, federal estate tax filings have decreased from 38,354 in 2008 to only 12,711 in 2017. 

This is due to increasing the federal estate tax threshold. Estates whose total taxable value comes in under this amount are not subject to federal taxes (Pennsylvania does not have a state estate tax). In 2007, that amount was $2 million. Per Forbes Magazine, the threshold is $11.4 million. Given that the average amount of a typical American estate is much less than that, many will not end up owing estate taxes. 

Married couples can also take advantage of the estate tax threshold to protect even more from estate taxes, yet it requires careful planning. The federal government allows couples to combine their unused exemption amounts (theoretically allowing them to protect up to $22.8 million for their beneficiaries). To do this, one must gift their estate to their spouses upon their deaths (the unlimited marital dedication allows one to gift up to the threshold amount tax-free). Yet doing so could push the surviving spouse’s estate above the threshold amount. To claim the deceased spouse’s unused tax exemption, the surviving spouse must file an estate tax return claiming portability the same year that the other dies. This allows that unused exemption to combined with that of the surviving spouse’s. 

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