Marital Deduction

1
Marital Deduction Section 2056

• General Rule All interests passing to surviving
  spouse deductible from gross estate to extent
  included in gross estate. The Unlimited Marital
  Deduction
• Exceptions
• 1. Life estate or terminable interest.
• 2. Interest acquired for S pursuant to
  directions of D.
• Exceptions to Exceptions
• 1. Limited survivorship period condition.
• 2. S has life estate in income and power of
  appointment.
• 3. Life insurance or annuity payments to S
  with S having power
• of appointment.
• 4. Qualified terminable interest property.
• 5. Charitable remainder trust S is only
  non-charity, non-ESOP
• beneficiary of CRT.

2
Terminable Interest Under 2056(b)(1)

• Three requirements
• Interest to SS lapse or fail on lapse of time or
  event or contingency or on failure of event or
  contingency to occur.
• Interest in property passes for less than full
  consideration to person other than SS or estate
  of SS.
• Such person may possess or enjoy property after
  SSs interest terminates or fails.

3
Qualified Terminable Interest Under 2056(b)(7)

• Three requirements
• Property passes from D.
• SS has qualifying income interest for life.
• - All income for life payable annually or
  more frequent.
• - No person has power to appoint for any
  person other than SS.
• Not apply to power on SSs death.
• 3. Executor makes election to claim marital
  deduction.

4
Problem 14 (1)

• Each spouses unified credit enough to cover each
  spouses
• estate. Consider bypass trust
• Surviving spouse (SS) trustee.
• All income to SS or distributee per ascertainable
  standard.
• Invade corpus per ascertainable standard.
• 5-5 power to invade at specific time during year.
• Children could be beneficiaries.
• Creditor protection.

5
Problem 14 (2)

• Facts D dies, leaves Blackacre to A for life,
  remainder to B. Residuary to spouse. A and B
  disclaim.
• Since all to S, all qualify for marital
  deduction.
• Postmortem planning.
• If C gets residuary and A B direct to S, no
  martial
• deduction. Gift from A B.
• c) If Ds unified credit will be wasted, SS
  might want to disclaim to a child or trust to
  fully utilize credit.

6
Problem 14 (3)

• Facts D and S own Blackacre as tenants by the
  entirety. Purchased in 1990. D dies.
• D interest pass to S, qualifies for marital
  deduction.
• Half qualifies for marital deduction because
  only half in estate.
• What is significance of 1990?

7
Problem 14 (4)

• Facts D dies. Estate in trust for parents
  lives, then to S.
• Any marital deduction?
• Remainder interest of SS qualifies. Deduction
  available even if another has prior terminable
  interest.

8
Problem 14 (5)(a)

• Facts D sells blackacre to child C for 50k,
  retains possession for term of yrs. FMV of
  remaining interest is 50k. D dies, leaves
  remaining 10 year possession interest to S.
• Ss interest terminates with lapse of time and D
  passed interest to third party who will possess
  after S, BUT
• C paid full consideration so 2056(b)(1)
  conditions not met.
• So, deduction under 2056 available.

9
Problem 14 (5)(b)

• Facts D gifts blackacre to child C, retains
  possession for term of yrs. D dies, leaves
  remaining 10 year possession interest to S.
• Ss interest terminates with lapse of time and D
  passed interest for no consideration to third
  party who will possess after S.
• This nondeductible terminal interest. No
  exceptions apply.
• No Q-tip election available because S not possess
  for Ss life.

10
Problem 14 (5)(c)
Facts D by will orders executor to buy 100k
life annuity for S. No deduction under Reg.
20.2056(b)-7(b)(1)(I). This is a terminal
interest that does not qualify for
deduction. What impact if D leaves 100k to S and
requests she buy annuity, and she honors request?

11
Problem 14 (6)
Facts D by will creates trust for S. T is to
pay to S such portion of income S deems desirable
and all accumulated income and corpus goes to Ss
estate. Deduction available under 2056. No
interest passes to any person other than S or Ss
estate and requirements of 2056(b)(1)(A) not met.

12
Problem 14 (7)
Facts D by will leaves all to S, but
redirecting to C if S doesnt live long enough to
probate D estate. No deduction. Ss interest
could be terminated on happening of an event.
Note, deduction would be available under 2056 if
period of survivorship not exceed 6 months.