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What an unlimited marital deduction is in estate planning

On Behalf of | Jan 3, 2022 | Estate Administration

Through a legal gift, you can pass wealth to your spouse tax-free. There are limits of up to $15,000 for each gift you give in a calendar year. Your estate plan in New Jersey may also include a trust that lists your spouse as the beneficiary. Many of these options, when legally funded, are deductible from your taxable income. To diversify and improve your options, consider passing on wealth to a spouse via an unlimited marital deduction (UMD).

No limits

What surprises many estate owners regarding UMDs is that there is no cap on the wealth they can pass to their spouses. What this means is that nothing is taxed. Most stipulations allow for reduced or deferred taxes, so elimination in this way is a rarity in estate planning. As an estate tax provision, the unlimited marital deduction was created in an attempt to treat spouses as “a single unit.” In being unlimited, it’s even possible for someone to transfer his or her entire estate to his or her spouse.

Taxation where possible

The “no limits clause” of an unlimited marital deduction stands but only for the entire life of both spouses. The UMD is, therefore, really a way to defer taxes. When one spouse dies, estate taxes will continue to be deferred. Only when the remaining spouse dies are the assets subject to taxation. There is no need for taxation, however. Spouses can legally place what they receive from each other into a trust or will and, thus, protect it for their beneficiaries.

Estate planning in New Jersey

With the right strategy, an unlimited marital deduction could protect everything you own. You need to plan your estate with as many tools as you have available. Speaking with your spouse and working together can result in even greater wealth in the end.