IRA Beneficiary
28. Leaving Everything to Your Spouse (Marital Deduction)
Some married couples have tried to avoid estate taxes by leaving everything to the surviving spouse. As long as your spouse is a U.S. citizen, you can leave your entire estate to your spouse and no estate taxes will be due when you die. This is called the unlimited marital deduction. But there can be problems with this. Let's look at an example.
Let's say Bob and Sue together have a net estate of $10 million, including Bob's IRA, and they both die in 2011 when the federal estate tax exemption is $5 million. By using the marital deduction and naming his wife Sue as the beneficiary of his IRA, Bob leaves everything to Sue estate tax-free. It's a great deal until Sue dies.