The unlimited spousal estate tax exclusion is a provision of the U.S. federal tax code that allows for an unlimited amount of assets to be transferred from one spouse to another at death without being subject to federal estate taxes. This means that when one spouse passes away and leaves assets to their surviving spouse, those assets are not subject to federal estate tax, regardless of their value.
The unlimited spousal estate tax exclusion is one of several estate planning tools available to married couples to help reduce or eliminate estate tax liability. It allows a couple to transfer assets between them without triggering estate taxes, which can be particularly useful for couples with substantial wealth.
However, it's worth noting that the unlimited spousal estate tax exclusion only applies to transfers between spouses who are both U.S. citizens. If one spouse is not a U.S. citizen, the exclusion is limited and may require more complex estate planning strategies to minimize estate tax liability.
Combined with Portability of the deceased spouses unused exemption and a married couple has some powerful tools to reduce estate taxes.
Portability of the deceased spouse exclusion is another provision of the U.S. federal tax code that can be used by married couples to minimize or eliminate estate tax liability. It allows a surviving spouse to use any unused portion of their deceased spouse's federal estate tax exemption.
Under current law, each person has a federal estate tax exemption, which is the amount of assets they can transfer at death without being subject to federal estate tax. For 2023, the federal estate tax exemption is $12.06 million per person. When one spouse dies, their estate can transfer any unused portion of their federal estate tax exemption to their surviving spouse. This is known as the portability of the deceased spouse's exclusion.
For example, if a husband dies in 2023 with an estate worth $6 million and has not used any of his federal estate tax exemption, his estate can transfer his entire $12.06 million federal estate tax exemption to his surviving wife. This means that when the surviving wife passes away, her estate can use her own $12.06 million federal estate tax exemption, as well as the $12.06 million exemption from her deceased husband, for a total combined exemption of $24.12 million.
Portability of the deceased spouse's exclusion can be a valuable estate planning tool for married couples, particularly if one spouse has not fully utilized their federal estate tax exemption. However, it's worth noting that portability only applies to federal estate tax, not to other taxes such as state estate or inheritance taxes. Additionally, portability is only available if the surviving spouse files an estate tax return for the deceased spouse's estate, even if no tax is due.