Marital Tax Deduction: Maximize Your Children's Estate Savings

Most parents focus on their kids’ needs first. But many miss out on smart financial strategies that could stretch their budget. The marital tax deduction isn’t just a tool for couples—it’s also a hidden way to maximize savings for your children. When used correctly, this deduction frees up cash that can go toward their education, future investments, or even inheritance. It’s a financial move that pays off now and later.

What Is the Marital Tax Deduction?

The marital tax deduction allows spouses to transfer unlimited assets to each other without triggering federal gift or estate taxes. This applies during life and after death, provided the couple remains legally married and files jointly.

This benefit only exists in its full form for U.S. citizen spouses. Non-citizen spouses may still qualify, but with tighter restrictions and limits. Most families use this deduction to shift wealth between spouses or reduce the size of taxable estates. However, it also serves as a foundation for long-term family wealth planning.

Why This Deduction Matters for Families With Children

Tax benefits aimed at couples can free up funds that would have gone to the IRS. When you keep more of your income and assets within the family, you gain more flexibility to build resources that support your children.

The marital tax deduction also plays a key role in estate planning. Without it, families might lose thousands in taxes due to untimely transfers or poor documentation. With it, you can structure inheritance, education savings, and even business ownership in ways that avoid unnecessary taxes and build generational wealth.

Start With Joint Filing and Asset Ownership

To benefit from the marital deduction, file jointly with your spouse. Joint filing often brings a lower overall tax bill due to the wider tax brackets and combined deductions. But beyond just filing together, couples should also look at how they own assets.

Joint ownership of property or accounts allows smooth transitions and simplifies tax calculations. When one spouse passes, the surviving spouse can take full ownership without facing estate tax on those assets. That leaves more behind for the children and reduces the likelihood of disputes or delays.

Use the Deduction in Estate Planning

One of the biggest uses of the marital tax deduction comes during estate planning. The unlimited marital deduction lets spouses pass their entire estate to the surviving spouse tax-free. While this may not directly give anything to the children immediately, it protects the estate from being taxed too soon.

Once the second spouse passes, any assets passed to the children may face estate taxes if the total exceeds federal limits. However, with proper planning, couples can use the marital deduction in combination with other strategies to shield assets across two lifetimes.

Include a Bypass Trust or Credit Shelter Trust

To avoid passing everything directly to the surviving spouse, many couples set up a bypass trust. This trust holds a portion of the estate and allows it to grow for the children’s benefit without being taxed again when the second spouse dies.

The bypass trust still supports the surviving spouse but locks in the estate tax exemption of the first spouse. That move can save hundreds of thousands in tax and makes the most of the marital deduction while still protecting the children’s share.

Shift Wealth While Living, Not Just Upon Death

You don’t need to wait for a will to use the marital deduction. Many couples shift assets between each other while alive to take advantage of the unlimited deduction. This move helps reduce one spouse’s estate and simplifies future transfers to the kids.

For example, if one spouse owns a business or rental property expected to appreciate, transferring a portion to the other spouse spreads the growth. Later, when passing the asset to children, each parent can use their gift or estate tax exemption. That tactic may keep the asset below taxable thresholds.

Make Gifts to Children Using Split-Gift Rules

Another way to extend the deduction’s benefits to kids is through gift splitting. Couples who file jointly can double the annual gift tax exclusion per recipient. For 2025, that’s $18,000 per parent, per child, for a total of $36,000 per year. That money can go into a 529 college plan, custodial account, or a trust.

Each year you use this strategy, you move assets out of your estate, reduce future estate taxes, and invest directly in your child’s future.

Consider Using the Deduction to Fund a 529 Plan

Education planning pairs well with the marital tax deduction. Because the deduction can reduce taxes for couples, you may free up cash that would have otherwise gone to the IRS. That cash can fund a 529 college savings plan, which grows tax-free and covers qualified education expenses.

Even better, 529 plans allow you to front-load contributions using five years’ worth of exclusions at once. For a couple, that’s $180,000 per child without gift tax consequences. This approach speeds up growth and takes advantage of market gains while shielding the funds from taxes.

Coordinate With Your Financial Planner or Tax Professional

The IRS rules around estate and gift taxes change often. What works this year may not work next year. The marital deduction offers incredible value, but it requires strategy.

Sit down with your financial advisor and estate planning attorney. They can help you:

• Identify assets to shift between spouses
• Set up trusts that preserve family wealth
• Avoid missed opportunities in annual giving
• Reduce exposure to future estate tax liabilities

The goal is to use the marital deduction as part of a bigger plan. Alone, it’s just a tax break. Combined with the right tools, it becomes a way to pass wealth and opportunity to your children without unnecessary tax friction.

Watch Out for Mistakes That Could Cost Your Family

Don’t Skip Documentation

If you shift large amounts between spouses without proper paperwork, the IRS may still challenge the move. Always track transfers and update titles, deeds, or account ownership when shifting property.

Avoid Delaying Estate Planning

Many couples focus only on joint returns or beneficiary designations. That’s not enough. You need wills, trusts, and a long-term plan. Without it, courts may split assets in ways that don’t reflect your goals.

Don’t Ignore State Tax Laws

Even if the federal estate tax doesn’t apply to your estate, your state might still impose its own tax. Some states set lower exemption limits than the IRS. Always review both sets of laws when planning your estate or giving strategy.

Let the Deduction Work for Your Whole Family

The marital tax deduction isn’t just for wealthy couples with complex estates. Any married couple can use it to shift assets, reduce taxes, and preserve more of what they’ve earned. The money saved can support a child’s education, first home, or even inheritance.

Even if your estate feels modest now, it may grow. Planning early helps you keep more of it in the family and avoid stress later. Used correctly, the marital deduction provides breathing room today and protection for tomorrow.

Final Thoughts

Don’t treat the marital tax deduction as just another line item on a tax return. Use it with purpose. Share assets wisely. Protect what matters. Every dollar you keep out of the IRS’s hands is another dollar you can use to invest in your child’s life, education, or future security. With the right planning, you’ll make the most of what you’ve earned and pass down not just money, but opportunity.

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to find out more about the world of Texas estate planning as well as how your family may be impacted by the filing of a probate case.

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