Personal Solutions

The Unified Tax Credit and the Unlimited Marital Deduction: Do They Work Against Each Other?

If used properly, the Unified Tax Credit and the Unlimited Marital Deduction can be extremely helpful in reducing an estate tax liability. However, passing the entire estate to a surviving spouse at the first death may not be the best option. Unless at least the exclusion equivalent is passed to someone other than the surviving spouse at the first death, the Unified Tax Credit is wasted and will be lost forever.

In some instances -- with very large estates, or estates that have rapidly appreciating assets -- it may be prudent to use the Unified Tax Credit at the first death to offset some estate taxes at that time. Then, when the surviving spouse dies, his or her Unified Tax Credit is used on the already reduced estate, and the heirs pay estate taxes on the balance.

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