Unlimited Marital Deduction
Candlefocus EditorThe unlimited marital deduction can be useful for couples with large estates who want to avoid the estate tax and maximize their transferable wealth. In addition to transferring assets upon death, the tax relief measure allows spouses to make unlimited, tax-free gifts to one another year round, if they choose to do so. This can provide significant annual savings and ensure that wealth is preserved over generations.
Other transfers to non-spouses, however, are limited. The IRS sets a maximum amount that an individual can give away each year, as well as a lifetime limit, known as the estate tax exemption. For 2021, the maximum amount of gifts that can be excluded from taxation is $16,000 per individual, while the estate tax exemption is set at $12.06 million. In 2022, these amounts will increase to $17,000 and $12.92 million respectively.
In total, the unlimited marital deduction allows spouses to transfer up to an unlimited amount of money and assets to one another without penalty or taxation. This can provide considerable tax savings, especially for married couples with large estates. However, non-spouse transfers are limited under the same IRS rules and it is important to stay within the applicable gifting limits and estate tax exemption.