How Can I Leave My Estate to My Spouse Tax-Free?

Dec 4, 2013

When you are planning your estate as a financially successful individual you should certainly be concerned about taxes. There is a federal estate tax in place, and it carries a very hefty maximum rate of 40 percent. Clearly, this can significantly erode the wealth that you are passing along to your heirs.

In this post we will look at the estate tax as it applies to asset transfers to your spouse.

Unlimited Marital Deduction

The estate tax is potentially applicable on asset transfers to your closest relatives, with one very profound exception.

There is an unlimited marital deduction. If your spouse is a citizen of the United States, no estate tax will be applied when you leave your spouse a bequest.

The reason why the unlimited marital estate tax deduction is not afforded to non-citizen spouses is because the surviving spouse could take his or her tax-free inheritance back to his or her country of citizenship. The IRS would never see any money.

Since your surviving citizen spouse’s estate would be exposed to the American estate tax if he or she was to receive a tax-free inheritance from you, the unlimited marital deduction does not particularly disturb the tax man.

Estate Planning Is Still Necessary

Because of the fact that the estate of the surviving spouse would be exposed to taxation, advanced estate planning techniques are still necessary even if you want to leave everything to your spouse at first.

When you are engaged in this type of planning you should be aware of the fact that the estate tax exclusion has been portable since 2011.

What does portability mean in this context? Let’s explain by way of example.

The amount of the federal estate tax exclusion in 2014 is $5.34 million. This is a per person exclusion. You have a $5.34 million exclusion, and your spouse has a $5.34 million exclusion.

Let’s say that you are a man, and you predecease your spouse. All of your exclusion could be utilized by your wife. She would have her own $5.34 million exclusion, and this additional $5.34 million exclusion that was allotted to you.

If you want to take advantage of the estate tax exclusion portability option you have to be proactive about it. The Internal Revenue Service does not automatically provide you with this additional exclusion if you are a surviving spouse.

To opt in to portability you must file Internal Revenue Service Form 706 within nine months of the passing of your spouse. If you needed additional time for some reason, a six-month extension could be granted.

Wealth Preservation Consultation

This is a brief look at the unlimited marital estate tax deduction. If you have further questions, contact our firm to schedule a wealth preservation consultation.

We are grateful you follow us and value your comments and input.  You Can Also Find Us Online: Facebook | Twitter | LinkedIn Thanks again.

Ryan M. Denman and Dennis D. Duffy

Duffy Law Office, PLLC



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