One Flesh, Two Taxpayers: A New Approach to Marriage and Wealth Transfer Taxation

Abstract

Marriage is an excellent estate planning strategy. Generally speaking one spouse can transfer assets to the other during life and at death without adverse estate or gift tax consequences. This has two principal economic advantages. First the tax-free status of marital transfers allows a comparatively wealthy husband or wife to shift assets to his or her less wealthy spouse so that each may take maximum advantage of all available tax deductions, exemptions, exclusions, special valuation rules, credits and lower tax rates. Second the taxfree status of marital transfers allows a married couple to postpone the payment of estate tax until the death of the second spouse. For these reasons property transfers between spouses form the cornerstone of the vast majority of married couples’ estate plans.
In permitting tax-free transfers during life and at death, the federal wealth transfer tax system treats a married couple as a single taxpayer. Just as marriage causes a man and woman to “become one flesh” for biblical purposes, it causes them to become one taxpayer for federal estate and gift tax purposes. The tax law embraces a “one flesh, one taxpayer” approach to marital wealth transfers