A husband dies with $25 million and leaves everything to his wife. Zero estate tax at his death. Six years later she dies with $30 million. The children face a bill exceeding $6 million. The marital deduction deferred the tax. It did not eliminate it.
Under IRC Section 2056, a decedent can transfer an unlimited amount to a surviving spouse with no federal estate tax. No dollar cap. The rationale: married couples are one economic unit, and the first death should not trigger tax on property staying within the unit.
HIGH-FREQUENCY: The marital deduction appears in nearly every estate planning scenario involving married couples. Know the five qualification requirements cold.
Five requirements:
- The decedent was married at death
- The surviving spouse actually survives the decedent
- The property is included in the decedent's gross estate
- The property actually passes to the surviving spouse
- The interest is not a nondeductible terminable interest
KEY: The marital deduction defers taxation. When the surviving spouse dies, whatever remains (plus growth) is included in that spouse's gross estate and taxed at that point.
Common mistakes
- Marital deduction eliminates estate tax. It defers, not eliminates. If everything passes to the surviving spouse via the deduction, the first spouse's exclusion is wasted (without portability), and the survivor's estate bears the full burden.
- TRAP: "$0 total combined estate tax", that is true only if both spouses' exclusions are fully utilized.
- QTIP versus general POA trust confusion. In a QTIP, the surviving spouse receives income but cannot appoint the remainder. In a general POA trust, the spouse can appoint to herself or anyone, the decedent loses control. Both qualify for the deduction, but for different planning purposes.
Bottom line
- Unlimited for citizen spouses: any amount passes estate-tax-free to a surviving U.S. citizen spouse, but it defers tax, it does not forgive it
- Terminable interest rule: blocks the deduction when the surviving spouse's interest ends and the property then passes to a third party
- QTIP trust: primary tool for blended families, income to the spouse, remainder controlled by the decedent's chosen beneficiaries
- Non-citizen spouse: cannot take the marital deduction directly, a QDOT is required, only citizenship matters, not residency or green card status
Exam shortcut
Married couple in an estate planning question (check two things: Is the surviving spouse a U.S. citizen? Which vehicle is in play) outright bequest, QTIP, bypass trust, or a combination? If the spouse is not a citizen, the answer is QDOT regardless of residency facts. If the question mentions portability as a complete substitute for a bypass trust, look for the three limitations as the reason it falls short.
The full lesson (about 2,604 words, 17 min read) adds 2 worked examples, all 7 common mistakes, a self-check, free in the app.
Learning objectives
- G.60
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