In the United States we have an estate tax on the federal level. At the present time the estate tax exclusion is $5.25 million, and the maximum rate is 40%. This $5.25 million figure is subject to ongoing adjustments for inflation on an annual basis.
What this means is that anything that you pass along to your loved ones that exceeds $5.25 million is potentially subject to the estate tax. We say “potentially” because there are steps that you can take to mitigate your exposure, and estate planning attorneys help clients take these steps.
This $5.25 million exclusion is not relevant when it comes to transfers between spouses. If you are married you can leave any amount of money to your spouse free of the estate tax.
However, there is a caveat to this. This unlimited marital exclusion is only extended to United States citizens. If you are a United States citizen and you are married to a non-citizen you cannot take advantage of the unlimited marital estate tax exclusion.
However, there is a way that you can get financial resources in the hands of your spouse after you pass away tax-free matter if he or she is not a citizen of the United States. If you were to create and fund a qualified domestic trust your spouse could receive distributions of the earnings and perhaps even tap into the principal under certain circumstances without incurring any estate tax liability.
If you’re interested in learning more about qualified domestic trusts and other legal devices that provide tax efficiency take a moment to contact our firm to schedule a free consultation.