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Marital Deduction All property passing to a spouse is deductible - whether by lifetime gift or at death. This means that while the value of these transfers is in the estate, it is also deductible. Whatever is given to a spouse is not taxable. If you give your spouse $10 million during life or at death there is no tax. But when the spouse dies later there is no marital deduction unless the spouse has remarried. At this time the spouse could give your property to his or her second spouse, unless you take steps to avoid it. Often estate planning documents give the tax free amount to a trust which will be included in the taxable estate. This trust is structured so that it will not be in the survivor's taxable estate later when he or she dies. The rest is given to the surviving spouse in some fashion to take advantage of the marital deduction. The surviving spouse does not have unrestricted rights over the part given to the taxable estate. It also passes free of tax. The surviving spouse on his or her later death can also pass an equal amount of property free of tax. Currently the tax free amount is $5,000,000 so each spouse can pass $5,000,000 tax free, or a total of $10,000,000 tax free to the kids. What if the first to die gives everything outright to the surviving spouse? It all qualifies for the marital deduction and there is nothing that passes in the taxable estate free of tax because of the tax free amount. In the past this meant this tax free amount was wasted. Now the tax free amounts, called applicable exclusion amounts, are portable. What one spouse does not use can be added to the other spouse's estate on the second death under many circumstances. Thus, if everything is given to the survivor on the first death, the second to die will have a $5,000,000 tax free amount. See the sections on Marital Deduction Trust and Q-Tip Trust. || Back
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Donald M.
Thompson * 55 W. Monroe #3950; Chicago, IL 60603 |
