The Marital Deduction and the Marital Trust

One of the most commonly used estate planning tool is the marital deduction. The marital deduction is an allowance of one spouse to pass unlimited assets to the other spouse during life, or at death, without paying any tax. In 2017 Federal law allows an individual to pass $5.49 million to his heirs without paying tax. Moreover, the Federal estate tax exemption, or unified credit, is portable between married couples, essentially allowing a married couple to pass nearly $11 million to their heirs, tax free. This may seem like the silver bullet of estate planning for married couples, but it gets more complex than that when coupled with Massachusetts law.

In Massachusetts, if the deceased's assets are valued over $1 million, the estate will be taxed. Like its federal counterpart, Massachusetts marital deduction laws allow a spouse to pass wealth to the surviving spouse tax free, but only up to $1 million. Unlike Federal law, Massachusetts does not recognize portability of the estate tax exemption, so the surviving spouse is left with only one exemption to pass assets to his heirs. It is important to note that marital deduction does not relieve the surviving spouse of tax liability, but rather postpones the imposition of estate tax until his death.

Married couples that rely solely on the portability of the unified credit and the marital deduction may leave their heirs facing a hefty tax bill. It may seem like $1 million is a high threshold to reach, but a home, investments, life insurance, savings, and other property, all add up quickly. Using a on of the qualifying marital trusts, both exemptions can be preserved. A properly drafted marital trust as part of your estate plan can potentially double the amount of wealth that a couple passes tax free, preserving your estate for the benefit of your heirs.

Contact the Law Office of Patrick Conway today for your free one hour consultation, and to see which type of trust is right for you.