Gifts to Spouses

Similar to the estate tax marital deduction, the gift tax marital deduction lets spouses (who are both U.S. citizens) transfer an unlimited amount of money to each other any time without gift tax concerns of any kind. (The unlimited marital deduction is not available for gifts to a spouse who is not a U.S. citizen, even if he or she is a U.S. resident.) Your lawyer can use these tax-free gifts to shift ownership of property between you and your spouse so that each spouse may make full use of his or her unified credit.

For example, suppose that Mr. Gotrocks is an old-fashioned fellow who has all the family assets in his name. As the previous chapter shows, he can set up trusts to escape taxes up to the exemption amounts of himself and his wife, if he dies first. But what if his wife dies before he does? She has no assets, so her exemption amount is lost. But if they each have assets of at least the exemption amount, and set up appropriate trusts, then they can use both exemption amounts no matter who dies first. If he gives her the exemption amount (remember, there is no tax on gifts between spouses), and then creates appropriate trusts, they’re covered.