Our Weekly Tip: Estates, Spouses and The Limits of “Tax Free”

Credit: happyhallowishes

Our Tip of the Week: Everything you leave to a spouse after you die is tax-free – which, naturally, means a big tax break. But your children may end up paying the price, what with your foregoing the ability to use you estate tax exemption – thereby “increasing your surviving spouse’s taxable estate” (CNN). Also, in the event that your spouse did not remarry, [his or] her estate could be up for grabs by the tax man. At the end of the day, [he or] she could even pay a higher rate.

How-to Suggestion:
One solution, says finance expert Fraser Sherman, “is leaving your estate to an A/B Trust.” That way, “your spouse gets to use the trust assets without actually inheriting them. When she dies, the assets pass from the trust to her heirs without ever becoming part of her estate.”

Explore other end-of-life tips through our Practical Tips column.