Marital deduction is a legal tax term that refers to the ability of a married couple to pass assets to and for each other without incurring taxation. The asset can either be given simultaneously, or one spouse can give money, property or other assets to the other spouse after the death of the first spouse. This deduction helps keep a couple’s combined estate from being taxed throughout the transition of assets.
The one main caveat to the marital deduction is the rules for filing a joint tax return. Generally, the couple must have filed a joint tax return in the year of the spouse’s death in order to use the marital deduction. However, even if the couple chooses to file separately, it is still possible to qualify for this deduction.
Another advantage of the marital deduction is that if the surviving spouse chooses to give the assets to someone else after their death (or if agreement exists that the property will be re-distributed for the benefit of someone who is not the surviving spouse) the marital deduction can continue to be applied. This means that the estate isn’t subject to taxation until it has been distributed from the estate, not from the couple.
Marital reduction is just one of the many important tax-related considerations that married couples need to be aware of, especially when it comes to estate planning. In today’s complex financial world, having a well-crafted financial plan can be key to ensuring that couples can enjoy their money and the security of their assets for many years to come.