A wedding is one of life’s happiest occasions and not normally a time you would think about your last will and testament. However, a marriage is a legal contract that has repercussions on many other legal aspects of your life, including your federal income taxes. If a will was made before marriage and your new spouse isn’t included, you may want to revise it to avoid worst case scenarios when it comes to estate distribution and taxation.
IRS Rules on Marriage and Wills
For tax purposes, the IRS recognizes spouses who are recognized as such in their own state. This includes same-sex marriages as well as common-law unions. The IRS doesn’t determine who gets a share of your estate if you are married after making your will. That is specified by Inheritance law, which also varies by state. In most states, your spouse is still entitled to a share of your estate despite being left out of your will. Your spouse is referred to as an omitted spouse in this case and is treated the same as any other spouse in terms of inheritance, even if you named someone other than your spouse as executor of your will.
For example, Adam has a will that leaves his entire estate to his younger brother Evan and makes him his executor. He marries Lisa but does not change his will because Lisa has inherited money from her parents. After Adam dies, Lisa is recognized by their state as his legal spouse and she inherits the entire estate, overriding Adam’s desire to make his brother his heir.
When it comes to estate taxes, an estate’s executor is required to file IRS Form 706 for the tax year in which the death occurred if the gross estate value is above a certain threshold. Included in the gross value are property, annuities, life insurance proceeds and community property. If an estate exceeds the threshold, the executors must file a return and pay any possible estate taxes within nine months of the decedent’s death. In this case, the entire estate is taxed rather than the amount going to individual beneficiaries.
2018 Tax Law
For the 2018 tax year, the estate value threshold for filing an estate tax return has been adjusted for inflation from $5.49 million to $11.18 million. For estate beneficiaries, up to $5.6 million can be inherited without paying federal estate taxes. Many states, however, have their own separate estate taxes that cover the entire inheritance. You may still be required to pay state taxes even though you are exempt from federal taxes.
2017 Tax Law
If you are filing late for the 2017 tax year, the filing threshold for an estate tax return is $5.49 million. Individuals who inherit less than $5.49 million are not required to pay estate taxes.
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