Can the Unlimited Marital Deduction Help Me Avoid Certain Taxes?

 Posted on January 27, 2020 in Taxation Law

Many people have strong feelings about the inheritance they plan to leave to loved ones when they pass away. After working hard to acquire assets throughout your life, you do not want the value of these assets to be reduced through estate tax or gift tax. If this is something you are concerned about, you may be interested to learn about an estate preservation tool called the unlimited marital deduction.

The Unlimited Marital Deduction Allows Married Couples to Be Treated as One Economic Entity

The unlimited marital deduction lets an individual leave money or property to his or her spouse without incurring immediate federal taxes or penalties. The value of the property that you can transfer is unlimited, and this transfer can take place during your lifetime or upon your death. In 1982, the unlimited marital deduction took effect, eliminating the federal gift and estate tax for property transfers involving spouses. This provision changed the law so that married spouses are now treated as one financial unit when it comes to property transfers.

The Marital Deduction Delays Estate Tax Liability

Spouses have the opportunity to transfer all of their property to a surviving spouse if they choose to do so, and they can do this without incurring federal gift tax or estate tax liability. However, this property is still included in the surviving spouse’s taxable estate, and it is therefore subject to taxation when the second spouse passes away. The unlimited marital deduction effectively delays the estate tax liability until the second spouse in a marriage passes away. It should be noted that in order to take advantage of the unlimited marital deduction, the spouse receiving the property transfer must be a U.S. citizen. However, other estate planning instruments such as a qualified domestic trust may help those who are not yet U.S. citizens gain the marital deduction and reduce their estate taxes.

Contact a San Jose Estate Tax Lawyer

If you are interested in learning more about how you can reduce your estate tax and gift tax liability, contact John D. Teter Law Offices to get the answers you need. San Jose, CA tax law attorney John D. Teter has over 30 years of experience helping clients with a wide range of tax concerns, including those related to tax audits and appeals, estate issues, foreign investments, small businesses, and more. Call our office today at 408-866-1810 and schedule a confidential consultation to discuss your needs.

Sources:

https://www.investopedia.com/terms/q/qualifying-domestic-trust.asp

https://www.investopedia.com/terms/u/unlimited-marital-deduction.asp