Estate Planning - Estate Tax Marital Deduction

May 22, 2025

While you can leave your entire estate to your spouse without paying federal estate tax, doing so may increase the total estate tax your family pays when your spouse dies unless special rules called “portability” apply. This is because each person is allowed to leave a certain amount—called the “exclusion amount”—to non-spouse beneficiaries (like children) without triggering federal estate tax. The federal estate tax exclusion is $13.61 million for someone who dies in 2024, and $13.99 million for someone who dies in 2025. If you leave everything to your spouse, your exclusion amount may go unused and be lost.

For example, if a husband dies in 2024 with a $14 million estate and leaves it all to his wife (who owns $990,000), no tax is owed at that time because of the marital deduction. However, when the wife dies in 2025 with a $14.99 million estate, only $13.99 million can pass to beneficiaries tax-free. The excess $1 million would be taxed, resulting in an estimated $400,000 tax bill (assuming a 40% tax rate). The husband’s $13.61 million exclusion is lost.

To avoid this, the husband could leave $13.61 million to the children (or other non-spouse beneficiaries) and the rest to the wife. This way, both estates make full use of their exclusions, and little or no estate tax would be due at either death.

If there’s concern that the $1 million left directly to the wife isn’t enough, the husband can instead leave the $13.61 million in a credit shelter trust. This trust allows the wife to receive income from the assets during her lifetime, while the principal ultimately goes to the children tax-free. The husband’s exclusion is preserved, and the assets in the trust aren’t taxed again in the wife’s estate.

If the spouse with fewer assets dies first, they may lose the chance to use their estate tax exclusion. This can often be fixed by having the wealthier spouse gift assets to the other spouse during life (these gifts can typically be made without tax consequences).

Here’s a special rule that allows the surviving spouse to use any unused exclusion from the first spouse to die. This is called “portability.” To use it, the deceased spouse’s estate must file IRS Form 706 to elect to transfer the unused exclusion.

For example, if a husband dies in 2024 with $14 million and leaves it all to his wife (who owns $990,000), his estate pays no tax and does not use the $13.61 million exclusion. But if his estate files Form 706 and elects portability, his unused exclusion can transfer to the wife. When she dies in 2025 with a $14.99 million estate, she can use both her $13.99 million exclusion and the husband’s $13.61 million—shielding the full $14.99 million from tax.

Sometimes, it’s not ideal to leave everything outright to a spouse—for example, when there are children from a previous marriage or concerns about the spouse’s ability to manage the assets. In these cases, a QTIP trust can be used. A QTIP trust qualifies for the marital deduction but allows you to control who receives the assets after your spouse’s death. The spouse receives income from the trust during their lifetime, but the trust principal can be directed to children or other beneficiaries afterward. This helps with both tax planning and meeting family goals.

The marital deduction is a valuable tool, but to use it effectively, you need thoughtful planning. It’s important to consider not just tax savings, but also your family’s financial needs, asset management, and long-term intentions. Working with an estate planning advisor can help ensure your plan reflects both your financial and personal priorities.