What Is the Unlimited Marital Deduction?

Law Office of Jonathan D. Alexander, Esq. — Tue, 18 Oct 2022 04:46:56 GMT

The unlimited marital deduction is part of the United States Federal Estate and Gift Tax law. The law allows married U.S. citizens to transfer an unlimited amount of property and money to their spouse at any time free of any taxation (both estate and gift taxes). These spouse-to-spouse transfers are not taxed. The largest transfers of property typically occur at the death of one of the spouses. For non-citizen spouses, the rules are different. The unlimited marital deduction is not allowed if the spouse receiving the gift, is a non-citizen. A citizen spouse may only gift a non-citizen spouse up to $164,000 in 2022.

What Happens When the Surviving Spouse Dies?

The unlimited deduction is no longer available after the second spouse (the surviving spouse) dies. If the value of the estate is greater than the applicable estate and gift tax exemption—and no advanced estate tax planning has been drafted—the estate may be subject to taxation when the property is passed to children. A surviving spouse may; however, use the unlimited marital deduction if she remarries. The surviving spouse may leave the entire estate to her new husband tax free. This is a nice windfall for the new husband, but not all at what the first husband would want especially if he has surviving children. With proper estate and tax planning, you can avoid estate and gift taxes while providing for surviving children, grandchildren, other loved ones and charitable institutions (if you so choose).

What is the Individual Estate and Gift Tax Lifetime Exemption?

In 2022, the individual estate and gift tax lifetime exemption is $12,060,000. For a married couple it is $24,120,000. This means that you and your spouse can transfer up to this amount to other individuals or entities (i.e., not each other because no tax applies to spouse-to-spouse transfers) tax free. There are 17 state that impose an estate or inheritance tax. California is not one of them.

The IRS does put an annual limitation on gifting. In 2022, there is a $16,000 annual gift tax exclusion. Each spouse can gift up to $16,000 annually per person tax free up to the lifetime exemption amount. Please note that the lifetime exemption is frequently adjusted by law. The lifetime exemption and applicable tax rates for amounts over the exemption has fluctuated dramatically throughout the last one hundred years.

Timeframe	Applicable Federal Estate Tax
September 9, 1916, to March 2, 1917	10% of net estate over $5 million
March 3, 1917, to October 3, 1917	15% of net estate over $5 million
October 4, 1917 to February 24, 1919	Basic estate tax of 15% of net estate over $5 million plus war estate tax of 10% of net estate tax over $10 million
February 24, 1919, to February 26, 1926	25% of net estate more than $10 million
February 26, 1926,to June 6, 1932	20% of net estate over $50 million
June 6, 1932 to May 10, 1934	45% of net estate over $50 million
May 11, 1934 to August 30, 1935	60% of net estate over $50 million
August 31, 1935 to June 25, 1940	70% of net estate over $50 million
Death after June 25, 1940, but before September 21,1941	70% of excess of net estate over $10 million1 plus a defense tax of 10% of the total tax computed under the basic and additional estate taxes (in effect, maximum tax was 77%)
Death after September 20, 1941, but before August 17, 1954	77% of excess of net estate over $10 million¹
Death after August 16, 1954, but before 1977	77% of amount over $10 million
Death after 1976 but before1982	70% of amount over $5 million
Death in1982	65% of amount over $4 million
Death in1983	60% of amount over $3.5 million
Death after 1983 and before 1988	55% of amount over $3 million
Death after 1987 and before 1998	55% of amount over $3 million (effectively 60% for estates over $10 million but less than $21,040,000 )
Death in 1998 through 2001	55% of amount over $3 million (effectively 60% for estates over $10 million but less than $17,184,000)
Death in 2002	50% of amount over $2.5 million
Death in 2003	49% of amount over $2 million
Death in 2004	48% of amount over $2 million
Death in 2005	47% of amount over $2 million
Death in 2006	46% of amount over $2 million
Death in 2007 and 2008	45% of amount over $2 million³
Death in 2009	45% of amount over $3.5 million
Death in 2010	35% of amount over $5 million and stepped-up basis for inherited assets, or election for no estate tax, but carryover basis for inherited assets
Death in 2011	35% of amount over $5 million
Death in 2012	35% of amount over $5,120,000 (as adjusted for inflation)
Death in 2013	40% of amount over $5,250,000 (as adjusted for inflation)
Death in 2014	40% of amount over $5,340,000 (as adjusted for inflation)
Death in 2015	40% of amount over $5,430,000 (as adjusted for inflation)
Death in 2016	40% of amount over $5,450,000 (as adjusted for inflation)
Death in 2017	40% of amount over $5,490,000 (as adjusted for inflation)
Death in 2018	40% of amount over $11,180,000 (to be adjusted for inflation)
Death in 2019	40% of amount over $11,400,000 (as adjusted for inflation)
Death in 2020	40% of amount over $11,580,000 (as adjusted for inflation)
Death in 2021	40% of amount over $11,700,000 (as adjusted for inflation)
Death in 2021	40% of amount over $12,060,000 (as adjusted for inflation)

What Does this Mean for Couples Who have Taxable Estates?

If you have assets in excess of or that will be in excess of the estate and gift tax lifetime exemption before you die, you should engage the services of a qualified California estate planning attorney. With the help of an attorney, you can create a gifting strategy that may avoid estate and gift tax altogether saving your family millions of dollars in taxes that your estate otherwise would have paid.

Everyday there are news stories where this scenario plays out and dozens more that do not make the headlines. James Gandolfini, the star of HBO’s Sopranos, died suddenly of a heart attack at the age of 51. Mr. Gandolfini had a will but did not engage the services of attorney to perform any advanced tax planning. He died with an estate worth about $70 million of which about $30 million went to the IRS. Another tragic story involves the pop music icon, Prince. Prince died unexpectedly of a fentanyl overdose and without a will. If he had sought the advice of an estate planning attorney, his family could have avoided the $80 million dollar tax bill on his $165 million estate.

Advance tax planning’s return on investment for taxable estates is self-evident.

What Does this Mean for Couples Who Do Not Have Taxable Estates?

Every Californian should have an estate plan even if estate tax issues are not a factor. A properly drafted and funded estate plan will protect you, your family, and your legacy. In California, if you pass away with only a will and an estate worth 184,250 in 2022 (this amount changes every three years), you will be subject to the probate process. Probate is time-consuming and expensive. And, in most cases, absolutely in your best interest to avoid it.

Where Can I Get Help?

To get your estate plan started call the Law Office of Jonathan Alexander at (949) 334-7823 today. Mr. Alexander has 20 years of experience and is ready to help you establish a customized estate plan that avoids federal taxation, the perils of probate, and protects you, your family, and your property.

To learn more about Mr. Alexander, read his bio linked here.

unlimited marital deduction - Law Office of Jonathan D. Alexander, Esq.

What Is the Unlimited Marital Deduction?