Marital Deduction

For purposes of the federal unified transfer tax, you generally can — during your lifetime, or at death — give an unlimited amount of wealth to your spouse tax-free. This can be a great advantage, but may not be the panacea that it seems. The reason: although you can transfer any amount that you want to your spouse, if your spouse survives you (and does not remarry), there will not be a marital deduction available to lessen the estate tax liability at his or her later death. For this reason, it's often a good idea not to give everything to the spouse outright, but to use a credit shelter bequest. In any event, income tax consequences should also be considered and a well-versed attorney should be consulted as early as possible.

After 2010, a surviving spouse may be able to take advantage of the unused portion of the estate tax exclusion of a deceased spouse, thus increasing the available exclusion. To take advantage of this portability provision, a special election must have been made by the predeceased spouse's estate on its estate tax return. Even families with very modest estates should consult an attorney at the death of the first spouse to die. For example, if the surviving spouse later "wins the lottery" or otherwise comes into increased wealth, it may be much too late by then to take advantage of this portability.