Unlimited marital deductions are an important aspect of estate planning, as they allow property to pass to spouses without estate taxes. But we need to take a look at the impact on future estate taxes.
If property passes outright to a spouse, whether it is passed through a will, trust, or joint ownership, it normally qualifies for the unlimited marital deduction. However, it will be included in the taxable estate of your spouse unless the surviving spouse spends or gifts it during their lifetime, or unless the surviving spouse remarries and the unlimited marital deduction allows the estate to pass to his or her surviving spouse.
For instance: John and Sally were married. John owned a $1 million business and $1 million dollars in stock in his own name. If John passes away in 2011, when the Federal estate tax is slated to have just a $1 million exemption, and he passes both the business and stock to Sally, there will be no estate tax owed, as a spouse may pass unlimited property to the surviving spouse with no estate taxes. On the other hand, if John left it to his children, there would be $2 million in property, and $1 million of it would be subject to estate taxes.
On the surface, it would seem to make sense to leave all the property to Sally, the wife. But when Sally passes away, even with just the property she inherited from John, her estate is now $2 million (not to mention the remaining property), and facing even more estate tax implications for her children.
Estate planning attorneys plan and strategize for these types of situations. We take the laws, family situations, property and estate taxes into account in completing an estate plan that puts deductions and exemptions to good use, without a negative impact on future estates. Rather than fitting you into an estate plan, we complete an estate plan that works for your particular needs.