How Does the Marital Deduction Affect Couples’ Estate Planning?

When married couples start estate planning, they may not realize the advantages of the marital deduction. This special tax deduction available only to married couples can help save money on taxes, but some additional estate planning might be necessary.

What Is the Marital Deduction?

The marital deduction is a tax deduction permitted by the IRS that allows spouses to make unlimited tax-free transfers to each other during their lifetimes or upon the death of one spouse. In other words, one member of a married couple will not have to pay gift taxes at the time if he or she transfers property or money to a spouse. Further, a surviving spouse can receive an inheritance from a deceased spouse without losing a chunk of the money to estate taxes.

The deduction only forestalls taxes until the death of the surviving spouse. At that point, the surviving spouse’s estate may owe estate taxes if the value of all the spouse’s assets exceeds a certain amount (currently in the tens of millions of dollars). Also, if the surviving spouse remarries at some point, then the surviving spouse may be able to give the property or money received from the deceased spouse to the new spouse.

Estate Planning to Take Advantage of the Marital Deduction

To make the most of the marital deduction, couples can do some estate planning that minimizes the surviving spouse’s exposure to estate tax liability. Which estate structures to put in place depends on the couple’s amount of assets. For example, you might need to move assets into a trust so that the surviving spouse’s estate can take advantage of the estate tax exemption (the maximum amount in the estate before owing taxes). Different kinds of trusts can provide support for the surviving spouse while removing assets from his or her taxable estate.

Keep in mind that non-citizen spouses are not eligible for the marital deduction. In fact, non-citizens often only receive lower estate tax exemptions too, so potential tax liability is huge. Fortunately, some careful estate planning can help, such as setting up a qualified domestic trust (QDOT). If you have questions about the marital deduction or the taxes that may apply to you, talk to a local estate planning lawyer.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

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