Sunday, May 27, 2012
A Facebook Wedding: Tax Consequences
Undoubtedly Facebook founder Mark Zuckerberg and Priscilla Chan entered into a prenuptial agreement. However, tax advantages also accompany the married life. At Forbes, lawyer Deborah Jacobs delineates the tax consequences. Here is an excerpt dealing with federal estate taxes:
There’s also a huge federal estate tax advantage to the Zuckerberg/Chan merger. (California does not have an estate tax.) Assets inherited from a spouse are not taxed as long as the inheritor is a U.S. citizen. This is the unlimited marital deduction. So Zuckerberg and Chan can now avoid the tax on their death by leaving everything to each other directly (outright) or having the assets go into a special trust, called a marital trust.
The marital deduction doesn’t avoid estate tax – it just postpones it. Whatever is left when the survivor dies could be subject to the tax.
Still, contrast the protections of marriage with what would happen if their previous arrangement continued. Apart from assets left to a spouse, which are tax-free, right now we can each transfer up to $5.12 million tax-free during life or at death to anyone else. Anything above that amount is subject to a 35% tax.
Next year this whole system may change. Unless Congress acts before then, at the end of this year the current $5.12 million per-person exclusion from the federal estate and gift tax will automatically dip to $1 million and the tax on transfers above that amount will go up to 55%.