Alternatives to Paying Estate Taxes: Create a Trust for the Surviving Spouse (Couples Only)

Money passing from a deceased spouse to the surviving spouse is not taxed. But if that money remained in the surviving spouse’s estate upon his death, it would then be taxed. If the surviving spouse does not need the money, the couple can plan to avoid this by passing enough assets to others (e.g., their children) so that the surviving spouse’s estate remains below $1 million. This strategy works only up to a point; if you give away over $1 million, the estate will owe a tax, anyway.

Alternatively, the surviving spouse may refuse or disclaim some of the money. In that situation, the money, like any other property, would typically pass to the children. This approach may require difficult calculations at a difficult time, which is one reason why most clients opt for the third option: structuring the estate to have assets pass directly into a trust established for the surviving spouse’s benefit. Such a trust would provide income for the surviving spouse during life without the remainder being taxed upon death. Again, this requires advanced planning with trusted counsel.