There is a federal estate tax marital deduction between a husband and a wife that allows you to bequeath an unlimited amount of money to your spouse without incurring any estate tax liability.
At the current time the estate tax carries a 40% top rate, and the amount of the exclusion is $5.25 million. (You may see this exclusion figure increase next year if an adjustment for inflation is applied.)
Anything that you pass along to your heirs other than your spouse that exceeds $5.25 million is subject to the estate tax unless you position your assets in a way that provides tax efficiency.
While you often hear about the unlimited marital deduction when you are researching the subject of estate planning one detail is sometimes omitted. This marital deduction is only afforded to United States citizens who are married to one another.
Many people spend time abroad these days, and international marriages are not entirely uncommon. If you are married to someone who is a citizen of another country and you are concerned about estate tax exposure, you must go forward with the understanding that the marital deduction is not going to be available.
However, there is another course of action that can be taken to set aside resources for the benefit of your spouse without incurring any estate tax liability.
You could choose to create a qualified domestic trust. Your surviving spouse would be able to benefit from assets that you have conveyed into the trust, and these distributions would not be subject to the estate tax.
There are however some specific and very detailed requirements. To learn more about these trusts contact our firm to schedule a free consultation.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.