How unlimited marital deduction can benefit your estate
Nationality and Unlimited Marital Deduction
All residents of the United States can take advantage of the unlimited marital deduction for property transferred to a spouse who is also a U.S. citizen, but the rules change for non-citizen spouses.
Other Rules Regarding Unlimited Marital Deduction
The unlimited marital deduction is available only until the death of the second spouse. If they do not spend or exhaust that during their lifetimes, the value of the property may be subject to taxes when passed on to their own heirs. If they give money or property to anyone other than the spouse, they may be subject to gift taxes.
Unlimited Marital Deduction and Living Trusts
All of this may require careful estate planning because some living trusts can override the usual rules. If the deceased left any property for their non-citizen spouse in a properly written Qualified Domestic Trust (QDOT), it will qualify for the deduction. Also, passing property to other types of trusts created by one spouse for the benefit of the other qualifies for the unlimited marital deduction. This includes marital deduction trusts or qualified terminable interest property trusts, also known as QTIP trusts. These are the “A” trusts in the AB trust plan. Also, qualified terminable interest property trusts for life, also known as lifetime QTIP trusts, qualify.
State-Level Estate Taxes and Unlimited Marital Deduction
States that collect their estate tax also allow for the unlimited marital deduction. In states that allow the election of state QTIP only through the use of an ABC Trust plan, the “A” trust and the “C” trust are QTIP trusts that meet the conditions for the unlimited marital deduction at the state level.
Frequently Asked Questions (FAQs)
What is the unlimited marital deduction? The unlimited marital deduction is a rule that allows couples (as long as both are U.S. citizens) to make an unlimited number of gifts to each other during their lifetimes without paying gift or estate taxes.
In what year did the unlimited marital deduction go into effect? The unlimited marital deduction went into effect in 1982. Prior to that, only the marital deduction for “property transfers in which the surviving spouse of the deceased had a temporary interest” was allowed.
Source: https://www.thebalancemoney.com/unlimited-marital-deduction-3505622
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