Unlimited Marital Deduction

Key takeaways

• The unlimited marital deduction lets a person transfer any amount of assets to a spouse—during life or at death—without incurring federal gift or estate tax on that transfer.
• It defers, but does not eliminate, estate tax: transferred assets are generally included in the surviving spouse’s taxable estate when that spouse dies.
• The deduction applies only to spouses who are U.S. citizens; a Qualified Domestic Trust (QDOT) can provide similar treatment for non‑citizen spouses.
• Annual gift tax exclusions and the federal estate tax exemption still matter for transfers to non‑spouses and for a surviving spouse’s eventual estate tax liability.

What it is

The unlimited marital deduction is a provision in U.S. federal tax law that treats married spouses as a single economic unit for estate and gift tax purposes. It allows unlimited transfers of property between spouses, free of federal gift and estate tax at the time of transfer.

How it works

• When one spouse gives assets to the other (by gift or at death), no federal gift or estate tax is charged on that first transfer because of an unlimited deduction.
• The tax is deferred: the transferred property becomes part of the surviving spouse’s estate and may be subject to estate tax when that spouse dies if the estate exceeds the applicable federal exemption.
• The deduction eliminates immediate tax on transfers between spouses but does not change the surviving spouse’s obligation when their estate is later settled.

Tax thresholds to know

• Annual gift tax exclusion (amount you can give to an individual tax‑free per year): $18,000 (2024); $19,000 (2025).
• Federal estate tax exemption (amount exempt from estate tax at death): $13.61 million (2024); $13.99 million (2025).
  These amounts affect transfers to non‑spouses and whether a surviving spouse’s estate will owe tax at death.

Special considerations

• Inclusion in surviving spouse’s estate: Any asset transferred under the marital deduction can be included in the surviving spouse’s taxable estate unless it is spent, gifted, or otherwise removed before that spouse’s death.
• Remarriage: If the surviving spouse remarries, assets remaining in that spouse’s estate will be treated according to the surviving spouse’s estate plan and applicable exemptions; the marital deduction itself does not prevent later tax consequences.
• Trusts and other planning tools: Using trusts (for example, credit shelter or bypass trusts) and other estate planning strategies can reduce overall estate tax liability across two deaths.
• Non‑citizen spouses and QDOTs: The unlimited deduction applies only when the surviving spouse is a U.S. citizen. To defer estate tax for a non‑citizen surviving spouse, a Qualified Domestic Trust (QDOT) may be established. A QDOT allows deferral of estate tax until principal distributions are made; income distributed to the surviving spouse is taxable as ordinary income. If the surviving spouse later becomes a U.S. citizen, remaining principal in the QDOT can typically be distributed without further estate tax.

Common questions

Q: Does the marital deduction eliminate estate taxes?
A: No. It defers taxes until the surviving spouse’s death, when their estate may be taxed if it exceeds the federal exemption.

Q: Can I transfer unlimited assets to any spouse tax‑free?
A: Yes, but only for federal gift and estate taxes and only when the surviving spouse is a U.S. citizen (unless a QDOT is used). State estate or inheritance taxes may have different rules.

Q: How do annual gift exclusions interact with the deduction?
A: Annual exclusions apply to gifts to any individual (including spouses who are not U.S. citizens, where special rules apply). The unlimited marital deduction removes federal tax on transfers between qualifying spouses, while the annual exclusion limits tax on gifts to other recipients.

Bottom line

The unlimited marital deduction is a core estate‑planning tool that allows spouses to transfer assets between each other without immediate federal gift or estate tax. Its main benefit is tax deferral—assets transferred to a surviving spouse are generally taxed only when that spouse’s estate is settled. Proper estate planning (trusts, use of exemptions, and QDOTs for non‑citizen spouses) can help manage tax exposure across both spouses’ lifetimes.