How Can I Leave My Estate to My Spouse Tax Free?
If you are a high net worth individual you must be aware of the federal estate tax and the impact that it can have on your financial legacy. Those who have been able to accumulate wealth have satisfied one objective. However, the next order of business will be to preserve this wealth so that you can pass it along to the next generation.
Federal Estate Tax Parameters
Those who are exposed to the estate tax are facing a hefty bite. The maximum rate of the federal estate tax is 40 percent. Clearly, this is a significant figure that gets your attention. Imagine losing 40 percent of the taxable assets that are being passed on to your loved ones.
Fortunately, every penny that you leave to your heirs is not taxable. There is a federal estate tax exclusion or credit. Right now the amount of this credit is $5.34 million.
Everything that you want to transfer that exceeds this amount is potentially taxable.
Unlimited Marital Deduction
Asset transfers are taxable, regardless of the nature of the relationship between the giver and the recipient, with one exception. There is an unlimited marital deduction. If you are legally married in the eyes of the law, you may bequeath any amount of money and/or property to your spouse free of the federal estate tax.
You could also give unlimited tax-free gifts to your spouse while you are living.
When you are considering the viability of the marital estate tax deduction you should understand the fact that it is only available to citizens of the United States. If you are married to someone who is not an American citizen, you cannot use the marital deduction.
Why would this be the case? The taxman does not surrender anything by allowing for the unlimited marital deduction. If you leave everything to your spouse tax-free, he or she will subsequently be exposed to the tax. The IRS will get paid eventually.
On the other hand, let’s say that you are married to a citizen of Greece, and the unlimited marital deduction was allotted to non-citizen spouses.
After you die, your spouse returns to Greece. She lives out her life in her country of origin.
If she dies in Greece as a citizen of that country, the United States Internal Revenue Service is not going to be in a position to levy an estate tax.
This is why the unlimited marital deduction does not extend to spouses who are citizens of foreign countries.
However, you could create a Qualified Domestic Trust to gain estate tax efficiency if you are married to someone who is a citizen of another country. Let The Zimmer Law Firm help you with your planning needs. Please call 513.721.1513 for a complimentary one hour consultation.