Tag: marital deduction

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.

What Is Estate Tax Portability, and How Will It Affect You?

In the United States, estate tax portability benefits married couples with larger estates. Though the concept of portability may seem complicated at first, understanding how to take advantage of it could save your family thousands on estate taxes.

The Basics of Estate Tax Portability

United States tax laws permit married couples who are both citizens to use the unlimited marital deduction. This means that spouses can transfer any amount of property or money to each other during their lifetimes or at their deaths, and the spouses will not pay tax on these transfers.

The laws still require spouses’ estates to pay estate taxes if the values of their estates on their deaths exceed the exemption amount. Federal law permits an approximately $11.18 million exemption per person in 2019. But spouses also can take advantage of estate tax portability to increase that exemption.

After one spouse passes away, the estate can choose to give all of the deceased spouse’s remaining exemption amount to the surviving spouse. In other words, if the deceased spouse’s estate is worth $5 million, the estate can give the remaining $6.18 million exemption amount to the surviving spouse. He or she would then have an exemption of $17.36 million upon his or her death, instead of the usual $11.18 million.

How Will Estate Tax Portability Affect You?

If you and your spouse own substantial assets, estate tax portability could help you keep estate taxes to a minimum. For many spouses, the value of their jointly owned real estate might tip the scales in making their estates potentially subject to tax upon their deaths. When the surviving spouse will inherit the real estate, that inheritance could greatly increase the value of his or her total estate. As a result, upon the surviving spouse’s death his or her estate could get stuck paying expensive taxes.

Further, spouses often leave the majority of their estates to each other. Since the surviving spouse will be leaving his or her estate to children or other relatives, the marital deduction will not apply anymore. This also could increase the taxes due, both on lifetime gifts to non-spouses and on inheritances passed on to relatives.

With an estate tax portability election, the surviving spouse can receive the benefit of the deceased spouse’s remaining estate tax exemption. This could reduce or eliminate the estate taxes that the surviving spouse’s estate would owe in the future.

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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