The federal government in addition to the $5,490,000.00 exemption for federal estate taxes, has exempted all transfers of assets between husband and wife. This is called Unlimited marital Deduction. Unlimited means that no matter how large your estate is, no tax is due when the first spouse dies. Is this a free ride? No. It merely postpones the tax until the second spouse dies. At that time, the entire estate will be taxed before the children or other beneficiaries receive their share.
In effect, the Unlimited Marital Deduction is almost a trick played by the federal government. By taxing the estate on the death of the surviving spouse, it allows the federal government to wait for the estate to grow to more than $5,490,000.00 and thus tax the estate at a rate of 45% on the excess over $5,490,000.00.
WARNING: The tax laws do not allow the Unlimited Marital Deduction to apply to surviving spouses who are not U.S. Citizens. Without special planning, all non-citizen spouses are limited to receiving only the personal exemption of their deceased husband or wife at the time of death. Any excess will be taxed.