Iowa Wealth Preservation: What Is the Marital Deduction?

Oct 7, 2013

In this post we will examine the federal estate tax marital deduction. However, before we delve into that specific topic let’s take a look at this federal death tax from an overview.

When you want to preserve wealth as an affluent Iowa resident you must be fully cognizant of the impact that the estate tax can have on your financial legacy. If you are proactive about implementing tax efficiency strategies you can mitigate your exposure. If you do nothing, your family may lose a great deal of financial flexibility.

You can pass along a certain amount of money and property free of the estate tax because there is an estate tax exclusion. The excluded amount in 2013 is $5.25 million. The maximum rate of the estate tax is 40 percent.

A light bulb may go on in your head when you hear about this tax. It is natural to get the idea that you can give away your assets to your heirs while you are living to avoid the estate tax. This is what John D Rockefeller did after the estate tax was first enacted in 1916.

However, since 1924 we have had the federal gift tax in place to close that loophole. The gift tax carries the same 40 percent maximum rate. The $5.25 million exclusion is unified, meaning that it applies to taxable gifts that you give and the value of your estate.

Marital Deduction

Now that we have provided the necessary background information let’s focus in on the estate tax marital deduction. You are using a portion of your $5.25 million unified exclusion when you give gifts or inheritances to anyone other than your spouse.

There is an unlimited estate tax marital deduction. You can give financial assets of any value to your spouse in a tax-free manner. You can give unlimited tax-free gifts while you are living, and you can bequeath an unlimited store of assets to your spouse as well without incurring any estate tax responsibility.

Of course, the existence of the unlimited marital deduction does not negate the need to plan ahead with tax efficiency in mind. If you simply decided to use the marital deduction to pass along everything to your spouse tax-free he or she would then be in a difficult position with regard to estate tax exposure. It is far better to plan ahead well in advance as a couple so that you are appropriately prepared every step of the way.

There is a caveat when it comes to the marital deduction. You can’t utilize this deduction to give tax-free gifts or bequests to your spouse if he or she is not a citizen of the United States.

You should also understand the fact that the estate tax exclusion is portable. Your spouse would be able to use your exclusion in addition to his or her own if you were to pass away.

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Ryan M. DenmanandDennis D. Duffy

Duffy Law Office, PLLC



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