Marriage has the tax benefit of the unlimited marital deduction, which is a deduction that allows you to give, either during your lifetime or at death, an unlimited amount of assets to your spouse.  A millionaire could give a million dollars to her spouse without being taxed and a zillionaire could give a zillion dollars to her spouse without being taxed.  The marital deduction is, indeed, unlimited.

Why You Should Use the Unlimited Marital Deduction

• Taxes are delayed
• Taxes can be minimized as your spouse can use his or her own unified credit exemption to reduce or eliminate the taxes on the assets you pass to him or her.
• You can pass assets in trust to your spouse and protect them from future creditors

Why You Should NOT Use the Unlimited Marital Deduction

• If portability laws aren’t in effect or the proper steps aren’t followed to take advantage of portability, you could be wasting your unified credit exemption and that means more taxes are paid, overall.
• Instead of using the unlimited marital deduction for all of your assets, this means that your unified credit exemption amount should go either to someone else such as to trusts for your children or to a family trust for your spouse and children.  Then give the excess to your spouse (or a trust for your spouse) to take advantage of the unlimited marital deduction.

Unlimited Marital Deduction Requirements

• Your spouse must have a right to all of the income of the assets.
• Your spouse must be the only beneficiary of the assets during his or her lifetime.
• He or she must have the right to make the assets income producing.
• Your spouse must either be an American citizen or receive the assets in a qualified domestic trust (QDOT.)
• The assets must be taxable in the estate of the surviving spouse (unless that spouse has remarried and passes assets to the new spouse.)

The unlimited marital deduction reduces the estate tax dollar or dollar; it’s an important planning tool.  Consult with a qualified estate planning attorney to determine how to make the unlimited marital deduction work for you and your family.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Tags: Inheritance Planning, QDOT, Tax Planning

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