Marital Deduction

SPOUSES ARE FREE to give as much money as they wish to each other, both while they’re alive and also upon death. In other words, as long as your spouse is a U.S. citizen, you aren’t constrained by 2024’s $18,000 gift-tax exclusion or $13.61 million federal estate tax exclusion. This is known as the “unlimited marital deduction.”

Moreover, your federal estate tax exclusion is “portable.” Let’s say you die first and leave everything to your spouse, who is a U.S. citizen. Upon your spouse’s death, the amount that can be bequeathed free of federal estate taxes would be twice as much, or some $27 million, and probably more because of intervening inflation adjustments to your spouse’s estate tax exclusion. Your unused exclusion amount, however, wouldn’t increase with inflation after your death.

Portability isn’t automatic, so it’s important that your spouse and executor consult a qualified attorney. To claim the unused exemption, your spouse will typically have to file with the IRS within nine months of your death. Portability is claimed on Form 706, which is used for estate tax returns. Your spouse will likely have to pay an accountant to prepare the return, but it may be worth it, even if your combined assets are currently well below $13.61 million. The reason: Between your death and your spouse’s death, the housing or financial markets might rise sharply or your spouse could receive an inheritance—and suddenly estate taxes are a big issue.

What if your spouse is a U.S. resident, but not a citizen? You can’t take advantage of the unlimited marital deduction, but you could still benefit from the usual $13.61 million federal estate tax exclusion, so estate taxes shouldn’t be an issue for most couples. While you’re alive, you are also limited in how much you can give each year, without worrying about the gift tax, to a spouse who isn’t a U.S. citizen. But again, the limit is high—$185,000 in 2024.

Next: State Estate Taxes

Previous: Federal Estate Taxes

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