subject: Marital Deductions [print this page] Marital Deductions Marital Deductions
Marital Deductions
If your estate exceeds $60,000, the importance of the mari tal deduction in reducing taxes cannot be overemphasized. However, if taxes were the only factor to be considered, therewould seem to be no question that a man should utilize theopportunity to pass on to his wife 50% of his estate on atax-free basis.
However, his wife may have an estate of her own which would be greatly augmented by this increment and the children might suffer taxwise by the use of the marital deduction.
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Of course, other factors enter into the decision, often reflecting the relationship between man and wife during their lifetime. For example, a man who is legally separated from hiswife, or a man who has been physically separated from hiswife for many years, may want to confine her to the statutoryshare or minimum of his estate, notwithstanding the fact thathe would improve his tax picture by leaving her 50% of hisestate. On the other hand, the man who has remarried mayfeel that he wants to limit the amount of inheritance of hissecond wife, frequently in the interests of surviving childrenfrom his first marriage.
Let us assume, however, that the decision has been made totake advantage of the marital deduction. The question thenarises as to how much of the estate should be left to the wife(or husband) and in what form the bequest or devise shouldbe made.
Many men decide to leave everything to their wives asprimary beneficiaries, naming the children as contingentbeneficiaries. While this decision usually reflects a happy marriage, the long-range tax picture may dictate leaving to the wife only that part of the estate which will qualify for themarital deduction.
For example, if a man leaves half of his estate to his wifeand the remainder to his children, his wife's half of the estatewill pass to her tax-free and the estate taxes will come out ofthe children's share. At the wife's death, further estate taxeswill be chargeable only on the portion of the husband's estatewhich, at the time of the wife's death, is a portion of herproperty. However, if the entire estate was left to the wife,estate taxes will be levied against the entire amount which sheowns at death, less such credits on the nonmarital deductionportion as may be allowed if the wife's death follows thehusband's death within a ten-year period. While gifts made bythe wife during her lifetime may alleviate the tax situationsomewhat, the risk is always created that needless additionaltaxes will be levied at the wife's death, thereby further eroding the assets of the original estate.
All other things being equal, most lawyers and accountants will recommend a division of the estate to give the wife thatportion which will qualify for the marital deduction, and tocreate a trust for the children, with the income from the trustto be paid to the wife during her lifetime. Frequently, thetrust is accompanied by a power to invade the trust for the benefit of the wife, with the principal remaining after inva sions to pass to the children on the wife's death. This placesthe second half of the estate outside of the wife's taxableestate.
