Estate Planning Tax Advantages for Married Couples in California

Estate planning is a hot topic in 2021, and creating a plan with taxes in mind is especially important.  Taxes are a very important part of estate planning and this article will focus on a narrow slice of that large pie from a legal point of view as we discuss the estate planning tax advantages for married couples.  Of course, these advantages apply to both same sex and different sex couples, and understanding how they work can be helpful background information for you as you consider your overall estate plan.  If you are interested in learning more from an investor’s perspective, this article on Investopedia may also be a helpful resource.   

  1. Unlimited Marital Deduction.  As per federal law, you can give assets by gift of inheritance to your spouse, and the taxes on that transfer are deferred until the death of the second spouse.  This is a powerful tool because there is not a limit on the amount that qualifies for the marital deduction.  
  2.  U.S. Citizen Requirement.  It is important to be aware that the unlimited marital deduction only applies when both people are U.S. Citizens.  If the survivor is a non-citizen, then federal estate taxes must be paid on an estate that is above the federal estate tax exemption. 
  3. Qualified Domestic Trust (QDOT).  If you are a U. S citizen wanting to pass assets to a non-U. S. Citizen spouse to defer federal estate taxes, a QDOT may be the right mechanism for you.  A QDOT allows the spouse who dies first to defer all federal estate taxes until both spouses have died and also allows that spouse to retain control over where his or her estate will be distributed after both die. 
  4. Qualified Terminable Interest Property Trust (QTIP Trust).  A Qualified Terminable Interest Property Trust (QTIP trust) allows a person to create a trust upon his or her death that grants a life estate for the spouse that survives.  The advantage here is that it can be done without incurring federal estate taxes.  This trust will be included in the surviving spouse’s estate for federal estate taxes, but it is distributed according to the wishes of the spouse that died first.  The surviving spouse cannot change the QTIP Trust.  


Consult with the Law Office of David Knecht

There are many ways to effectively utilize estate planning to effectuate your wishes with tax advantaged methods. For a thorough discussion of issues relating to estate planning and taxes, please contact the attorneys at the Law Office of David Knecht, at 707-451-4502.