Understanding the Unlimited Marital Deduction

The unlimited marital deduction is an estate tax provision that went into effect in 1982. The provision eliminated both
the federal estate and gift tax on transfers of property between spouses, in effect, treating them as one economic unit.
The deduction was adopted by Congress to redress the problem of estates being pushed into higher tax brackets by
inflation. Because the estate tax, like the income tax, is progressive, estates that grow with inflation are hit with higher
tax rates.

With the unlimited marital deduction, the amount of property that can be transferred between spouses is unlimited,
meaning that a spouse can transfer all of his or her property to the other spouse, during lifetime or at death, without
incurring any federal estate or gift tax liabilities on this first transfer. The transfer is made possible through an
unlimited deduction from estate and gift tax that postpones the transfer's taxes on the property inherited from each
other until the second spouse’s death.

In other words, the unlimited marital deduction allows married couples to delay the payment of estate taxes upon the
death of the first spouse because after the surviving spouse dies, all assets in the estate over the applicable exclusion
amount will be included in the survivor’s taxable estate.