When it comes to estate planning, Australian couples have a unique advantage through the unlimited marital deduction. This provision allows spouses to transfer assets to each other, either during their lifetime or upon death, without triggering immediate estate or gift tax liabilities. With evolving tax policies and rising asset values in 2025, understanding how to leverage this deduction is more relevant than ever for protecting your family’s wealth and legacy.
What Is the Unlimited Marital Deduction?
The unlimited marital deduction is a cornerstone of estate planning for married couples. It permits the transfer of an unrestricted amount of assets between spouses, free from federal estate and gift taxes. In essence, it enables a spouse to leave their entire estate to their surviving partner without the burden of immediate tax consequences.
- No immediate tax on transfers: Assets passed between spouses are not counted towards the taxable estate at the first spouse’s death.
- Available to married couples: Applies only to legally married spouses, including those in same-sex marriages, following recent legal clarifications.
- Deferral, not elimination: While the deduction delays tax, it doesn’t eliminate it. When the second spouse dies, their estate could still be subject to estate tax if it exceeds the prevailing threshold.
In Australia, while there’s no explicit federal estate tax, similar principles apply in relation to capital gains tax (CGT) exemptions and inter-spousal asset transfers, which can defer or reduce tax liabilities.
How the Unlimited Marital Deduction Works in 2025
As of 2025, Australian tax policy continues to favour inter-spousal transfers under the Capital Gains Tax (CGT) marriage exemption. This means that assets transferred to a spouse, either during life or via a will, typically do not trigger an immediate CGT event. The government has maintained its position on the CGT rollover for married couples, a move that has been well-received by estate planners and financial advisors across the country.
Key updates for 2025 include:
- CGT Rollover Relief: When assets are transferred to a spouse, the cost base and holding period are preserved, delaying any CGT liability until the asset is eventually sold by the surviving spouse or their estate.
- Superannuation Death Benefits: In most cases, superannuation death benefits paid to a spouse are tax-free, continuing the trend from previous years.
- Family Home Exemptions: The main residence exemption remains in place, so the family home can usually be passed to a spouse without CGT implications.
Real-world example: When John passed away in 2025, he left his investment property and superannuation balance to his wife, Mary. Because of the unlimited marital deduction and related CGT rollover, Mary received these assets without paying immediate tax. The cost base of the investment property transferred to her, and she will only face CGT if she decides to sell in the future.
Strategic Estate Planning with the Marital Deduction
While the unlimited marital deduction offers significant tax advantages, it’s essential to use it as part of a broader estate planning strategy. Couples should consider how the surviving spouse’s estate may be taxed upon their death and whether assets could be exposed to creditors, remarriage, or poor financial management.
Strategies to maximise benefits in 2025:
- Testamentary Trusts: Establishing a testamentary trust in your will can provide your spouse with income and asset protection, while offering flexibility for future generations.
- Superannuation Nominations: Regularly review your superannuation beneficiary nominations to ensure they align with your wishes and optimise tax outcomes.
- Gifting and Asset Transfers: Consider making inter-spousal gifts or asset transfers during your lifetime to take advantage of the CGT rollover and reduce potential tax liabilities on death.
It’s also wise to factor in blended family dynamics, as stepchildren and former spouses may have rights under the Family Provision Act or contest a will. Proper legal advice and documentation are crucial to prevent disputes and safeguard your intentions.
Key Takeaways for Australian Couples in 2025
- The unlimited marital deduction remains a powerful tool for deferring estate and capital gains taxes between spouses.
- Australian law provides generous exemptions and rollovers for inter-spousal transfers, but planning is essential to minimise future tax exposure.
- Estate planning should be reviewed regularly, especially after major life changes or policy updates.
With asset values climbing and financial regulations evolving, making informed decisions about your estate can save your family significant time, money, and stress in the years ahead.
