1972, August, Pg. 9. Explaining the Marital Deduction to Your Client.

• Author: by Harold D. Torgan

1 Colo.Law. 9

Colorado Lawyer

1972.

1972, August, Pg. 9.

Explaining the Marital Deduction to Your Client

9Vol. 1, No. 10, Pg. 9Explaining the Marital Deduction to Your Clientby Harold D. TorganHarold D. Torgan, Denver, is a partner in the firm of Torgan, Smith and Chrysler.For the married client whose estate will exceed $120,000, one of the most valuable methods of saving federal estate taxes is the marital deduction. However, it is frequently a problem to explain to a client what the deduction means and how it works.

Although the marital deduction benefits either a surviving wife or husband, we will for the purpose of the explanation assume that the wife survives her husband.

Many clients do not realize that their estates may easily exceed $120,000. For federal estate tax purposes, this total includes property standing in the names of both husband and wife (such as joint tenancy property) and that held as tenants in common, life insurance proceeds if he has retained ownership of the policy, and gifts made within three years of death if made "in contemplation of death." It includes the assets in so-called living revocable trusts established by the deceased, and it may also include property he had never even owned but over which he had a power of appointment, that is, the right to designate who would receive it. Thus, for federal estate tax purposes, the estate frequently consists of far more property than that which is actually probated in court.

What is the Marital Deduction?The simplest way to explain the marital deduction to a client is to state that by leaving one-half of his "adjusted gross estate" (or total estate, minus funeral expenses, administration costs and debts) to his wife, this one-half escapes all federal estate taxes. This tax-free amount, however, can never exceed one-half of the adjusted gross estate, and it must consist of property which would become part of the surviving spouse's estate at her death unless she disposed of it during her lifetime. This is property which "qualifies" for the marital deduction.

"Over qualification" merely means that more than one-half of the adjusted gross estate will be received by the surviving spouse, whereas only one-half is tax exempt. This would result in the additional property also becoming part of her estate, to be taxed a second time at her death.

The purpose of the marital deduction law, which was passed in 1948, was to give residents of all states the same estate tax advantages. There are eight community property states where all property accumulated

10by either spouse during the marriage is considered equally owned by each. The 1948 law equalized the estate tax burdens throughout the country.This...