Unlimited Marital Deduction

Unlimited marital deduction allows spouses to transfer an unlimited amount of property or money to each other without incurring federal gift or estate taxes. This can occur during the lifetime of one spouse or upon death. The transfer can take place in many forms, from outright transfers of ownership to a variety of trust arrangements. However, there are some limitations to the unlimited marital deduction. For example, the survivor must be a legal spouse and survive the property donor by a specified contingency period. This is usually 30 to 60 days. It is also important to consider whether the transferred property qualifies as a QTIP or qualified terminable interest property trust.

Unlimited Marital Deduction for Non-citizen

Unlimited marital deduction does not apply to transfers to non-citizen spouses. In fact, if you are married to a non-citizen, you could face substantial tax liability if you pass away without proper planning in place.

Fortunately, there are ways to avoid this issue. One way is to set up a Qualified Domestic Trust (QDOT). The QDOT is a legal structure allowing the surviving non-citizen spouse to qualify for the unlimited marital deduction. However, the funds must be held in the QDOT for at least nine months after the death of the U.S. citizen spouse. Moreover, the non-citizen spouse must also apply for citizenship within six months of the decedent’s death to qualify.

Another option is to draft multiple wills. One will may deal with only cash and property in the United States, while another will be drafted for assets outside of the U.S. While some countries recognize the wills drafted in the United States, others do not, so careful planning is necessary. In addition, it is important to note that the law in other countries varies and can impact how property is transferred.

Unlimited Marital Deduction for 2024 Tax Year

The IRS recently announced key gift tax and estate tax threshold amounts for the 2024 tax year. These thresholds are adjusted each year for inflation. As a result, many people may be surprised to learn that their estates will be taxed at lower levels than expected.

Married couples can use a credit shelter trust to reduce the impact of estate taxes. This strategy is particularly beneficial for those with taxable estates over the applicable exclusion amount. It involves transferring a portion of your estate into an exemption trust and another portion into a marital trust. Assets in the credit shelter trust are offset by the applicable exemption amount, while assets in the marital trust are shielded from estate taxes.