One great benefit of being married (when it comes to estate planning) is that you have an avenue to make gifts, both during your lifetime and at your death, to your spouse in any amount and entirely free of federal tax consequences.
All non-spousal gifts and bequests are subject to IRS gifting limits and estate exclusion ($12.92 million per individual or $25.84 million jointly for a married couple for 2023), but, absent Congressional action, this figure will revert to 2017’s exclusion adjusted for inflation to $7.0 million per individual or $14.0 million per married couple, adjusted for inflation, as of January 1, 2026).
You can, in effect, transfer any part or the whole of your assets to your spouse, without tax consequences until the time of the death of the surviving spouse. At that time, any assets above the estate exemption for that year will be taxable to the heirs, unless the surviving spouse has remarried, and transferred his or her assets to their new spouse.
However, the full benefits of the unlimited spousal deduction apply only when both spouses are U.S. citizens. If the receiving spouse is not a U.S. citizen, there is a limit to how much can be transferred annually – the limit for tax year 2023 is $175,000. For non-citizens, the unlimited spousal deduction only applies when transfers, gifts, or bequests are made via a qualified domestic trust; to qualify, at least one of the trustees must be a U.S. citizen, and the trust must provide that any distribution of principal be subject to that U.S. trustee’s withholding of any estate tax due.
The unlimited spousal deduction is one of the most powerful tools in estate planning; however, it is vital to use wisely it in the context of your individual family and financial situation. For example, let’s say you and your spouse have a combined estate of $25.84 million. Your spouse can inherit it all, with no immediate tax consequences. But, when your surviving spouse dies, will your children and grandchildren be hit with a large tax bill on their inheritance? What if the current estate exclusion limits have not been extended by Congress, and reverts to an inflation-adjusted $7 million? Assuming your spouse has not remarried and qualifies for only the individual estate exemption and has not significantly depleted the family assets they’ve inherited, that tax bill could become an unwelcome reality for your descendants, who will at the same time be dealing with a huge loss and much grief.
Protect your legacy now – consult with your CPA, financial advisor and estate attorney – estate planning is too important not to seek expert guidance for it. They can review your financial picture and its individual components, discuss in-depth your long-term goals for your family’s financial security, and devise a plan crafted to bring those goals to fruition. Is a trust the right solution for you? If so what type? Your advisors will know what sort of trust, or trusts, will best serve your and your family’s interests. S/he will also provide other recommendations for securing your estate for your heirs.
If you have a substantial estate to leave and have no firm estate plan, or an outdated one, please consult with our expert financial and estate advisors. We are here for you.
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Until next time –