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Keeping estate tax at a minumum when leaving an inheritance

Many Texas residents may not have to worry about reaching the federal estate tax exemption, but that does not necessarily preclude the need to minimize tax exposure. One of the main purposes of estate planning is to keep the amount of estate tax that may be due as low as possible. This may work well for the first spouse to pass away, but additional consideration may be needed to determine how estate taxes may impact the estate of the surviving spouse.

Even though no federal estate tax may be due, filing a correct estate tax return with regard to the death of the first spouse could prove vital. Even if the total amount of the first spouse's estate does not exceed the current exemption of $5.25 million, the surviving spouse's estate may exceed its own exemption upon his or her death. If an appropriate estate tax return is filed, the surviving spouse may claim any unused portion of the exemption for his or her estate.

For instance, if the deceased spouse's estate is worth $2.25 million, filing an estate tax return could reserve the remaining $3 million for use by the surviving spouse. That amount is in addition to the surviving spouse's own exemption of up to $5.25 million. This would increase the surviving spouse's exemption to $8.25 million, meaning that no estate tax will be due as long as the value of the estate does not exceed the total combined exemption.

When drafting an estate plan in Texas, it may be necessary to look beyond one spouse's estate in order to ensure that little to no estate tax will have to be paid by the surviving spouse's estate. This may involve additional estate planning documents such as trusts. In doing so, assets can be managed in a manner so as to minimize and estate tax issues.

Source: Chicago Tribune Business, Understand laws to minimize estate tax for your heirs, Elliot Raphaelson, Nov. 19, 2013

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