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 $1.35 million and they both die in 2000. Bob dies first. By using the marital deduction, Bob leaves everything to Sue estate tax-free. It's a great deal until Sue dies.
