What is the Unlimited Marital Deduction? The Unlimited Marital Deduction allows the first spouse to die to transfer an unlimited amount of property to the surviving spouse free of Federal Estate Tax. This does not mean that the second spouse to die will not have any Federal Tax liability. Whether the second spouse to die will owe federal estate tax depends on the size of the estate when the second spouse passes. In 2016, if the estate is less than $10,900,000, the spouses can pass all of their estate to their heir’s federal estate tax free (as long as it is properly passed).
In 2016, the IRS has set the Estate and Gift Tax Exemption amount at $5.45 million dollars for an individual. Thus, a married couple can leave $10,900,000 to their heirs free of Federal Estate Tax. This Estate Tax Exclusion amount is indexed and adjusted for inflation and was increased from $5.43 million in 2015.
Now what is Portability? Portability is the ability of the second spouse to use the unused estate tax exclusion amount of the first spouse to die. If the first spouse to die does not use all of their estate tax exclusion, this is called the Deceased Spousal Unused Exclusion Amount or DSUE. This unused portion used to be lost, but now portability can save this unused amount for the benefit of the second spouse upon their passing. Upon the second spouses passing, their applicable Estate Tax Exclusion (in 2016 it is $5,450,000) is their own Estate Tax Exclusion amount plus their deceased spouses DSUE amount.
While an unlimited amount can be passed estate tax free from the first spouse to the second when the first spouse dies, care must be taken because this can increase the taxable estate of the second spouse. Where spouses own significant assets, advanced planning can be used to reduce the federal estate tax liability. This is the case when an individual or couple owns more than the applicable Estate Tax Exclusion amount.
See lots of estate planning information on my website at: www.myestate-plan.com
Please see my blog for more on Federal Estate Tax and advanced planning techniques. Call me today and let’s get your Estate Plan together.
Thanks for reading my blog.
William Daniel Powell
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.
Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.