Understanding Estate Taxes
7. Leaving everything to your spouse (A)
Some people think they can avoid estate taxes by leaving everything to their spouses when they die - through their wills, joint ownership, beneficiary designations and even their living trusts.
And, in fact, as long as your spouse is a U.S. citizen, you can leave your entire estate to your spouse and there will be no estate taxes at your death. This is called the "unlimited marital deduction."
But this can be a tax trap, because it often results in a larger tax bill when your surviving spouse dies. Here's why.
Let's say Bob and Sue together have a net estate of $4 million and they both die in 2008. Bob dies first. By using the marital deduction, Bob leaves everything to Sue estate tax-free. It's a great deal until Sue dies.