Understanding Estate Taxes
7. Leaving everything to your spouse (A)
Some people think they can avoid estate taxes by leaving everything to their spouse when they die through their will, joint ownership, beneficiary designations and even a living trust.
And, in fact, as long as your spouse is a U.S. citizen, you can leave your entire estate to your spouse using the unlimited marital deduction and there will be no estate taxes at your death.
But be careful. Using the unlimited marital deduction to avoid estate taxes can be a tax trap, because it often results in a larger tax bill when the surviving spouse dies. Here's why.
Let's say Bob and Sue together have a net estate of $10 million and they both die when the estate tax exemption is $5 million. Bob dies first. By using the marital deduction, Bob leaves everything to Sue estate tax-free. It's a great deal until Sue dies.