ABA Family Legal Guide

Estate Planning

Death and Taxes

The law allows me to leave everything to my spouse tax free, right? How can we use that to our children's maximum advantage?

The best provision of federal estate tax law from the taxpayer's perspective is the unified credit, which gives each person a $2 million total exemption from estate taxation in 2007-2008 (the amount will go up in later years). But what do you do if your wealth exceeds that amount?

One of the most basic tax-planning devices is the unlimited marital deduction. It allows one spouse to pass his or her entire estate, regardless of size, to the other—and not pay federal estate taxes. No matter how large the estate, no taxes are due when it is passed to the spouse.

If you only cared about leaving your property to your spouse, that would end your tax worries. Most people, however, want to leave property to their families at the death of the surviving spouse—and this is where tax planning pays off.

To take full advantage of the unified credit and the unlimited marital deduction, married taxpayers with assets above the exemption amount probably will be advised to use a trust. Trusts are one of the main ways to minimize taxes upon death. By doing so properly you should be able to transfer at least double the exemption amount free of estate taxes to your children or other beneficiaries no matter which spouse dies first or who accumulated the wealth.