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New York & North Carolina

Estate Taxes and Marital Trusts


Estate Taxes and Marital Trusts

When someone dies, any assets left for beneficiaries may be subject to estate taxes. The “taxable estate” amount is the final value of the estate that is subject to the estate tax. The federal estate tax can be as high as 40% of the inheritance amount.  Reducing estate taxes is a common reason for and a common benefit of comprehensive estate planning. One estate planning tool used to reduce estate taxes are marital trusts. Marital trusts reduce estate taxes by taking advantage of the marital deduction and the unified credit.

The Marital Deduction and The Unified Tax Credit

The 2018 estate and gift tax exemption is $5.6 million per individual, meaning an individual can leave $5.6 million to heirs and pay no federal estate or gift tax. Married couples can now shelter $11.2 million from federal estate and gift taxes, and the annual gift exclusion amount has been increased to $15,000.

The marital deduction reduces an individual’s “taxable estate” by the value of all assets an individual transfers to their spouse at death. The unified tax credit acts as an additional exemption to reduce the value of an estate. The unified tax credit has a fixed amount that an individual can gift during his or her lifetime before any estate or gift taxes apply. The 2018 federal tax law applies the estate tax to any amount above $10 million.

How the Marital Trust Works

The marital deduction is only available for assets left to a surviving spouse. When a spouse is named as the sole beneficiary, it eliminates the possibility of other family members receiving the assets and losing the marital deduction on the estate tax return. The marital trust enables married couples to pass unlimited amounts of assets to each other, without any gift tax or estate tax implications. The marital deduction will apply to all the property placed inside the marital trust.