7.2 Basic Requirements

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

7.2 Basic Requirements

The estate tax marital deduction is allowed for the full value of the property passing to the surviving spouse to the extent that such property is included in the gross estate. It is immaterial whether the property passes by the decedent's will, by intestacy, by beneficiary designation on a life insurance policy or retirement plan, by right of survivorship, or in some other manner.

For the estate of a decedent to qualify for a marital deduction, the following basic requirements must be met:²

1. The decedent must be survived by a spouse;
2. The property must pass from the decedent to the surviving spouse;
3. The property must be included in the decedent's gross estate; and
4. The property must not be transferred as a life estate or other terminable interest unless specific requirements are met.

Caution: Property passing from the decedent to the surviving spouse that is conditioned on the spouse surviving for a limited period of time will not qualify for the deduction if the time period exceeds six months from the date of the decedent's death.³

Caution: Property passing into a trust or consisting of proceeds payable under a life insurance or annuity contract in which the surviving spouse receives only an interest for life will not qualify for the deduction unless (1) the surviving spouse receives all of the income from the property at least annually, (2) the surviving spouse receives a lifetime or testamentary general power of appointment over the property, and (3) the power of appointment is exercisable (whether or not it is ever exercised) by the surviving spouse alone and in all events.⁴

The qualified terminable interest property (QTIP) election provides an important exception to the preceding caution and to the fourth requirement listed earlier. Because of this election, property that does not pass outright to the surviving spouse may still qualify for the marital deduction if certain requirements are met. Examples of typical nonqualifying property are (1) a life estate to the surviving spouse with the remainder passing to the children, or (2) a trust for the surviving spouse's lifetime benefit in which he or she does not receive a general power of appointment. These types of interests will qualify for the marital deduction under the so-called QTIP election if (1) the property qualifies for the marital deduction for reasons other than its being a terminable interest and (2) the executor elects on the decedent's federal estate tax return for the property to qualify for the marital deduction.⁵

The effect of this election is that the decedent's estate receives a marital deduction; however, to qualify for the election the property will be taxable in the surviving spouse's estate. Without the QTIP election, the property will not qualify for the marital deduction in the estate of the first spouse and thus will be taxable there, although it then will not be taxable later in the estate of the surviving spouse.

7.21 Survived by a Spouse

The requirement to be survived by a spouse obviously requires that the parties be married. This determination is made as of the date of death of the decedent. Thus, the marital deduction is still available even if the parties are separated at the time of the decedent's death. As long as the parties are married at the date of death, this requirement for the marital deduction is met. Also, any interpretation of the meaning of marital status is determined by reference to the state law of the state in which the decedent is domiciled at the time of death.

Normally, the requirement that the decedent be survived by his or her spouse creates no problems of interpretation. In the unusual situation in which the deaths of the parties occur simultaneously, a problem arises. How is the will to be interpreted, especially in regard to the marital deduction, which requires that the decedent be survived by his or her spouse?

If the decedent's will establishes a presumption as to which spouse survived, the presumption will be followed for purposes of this requirement of the marital deduction.⁶ Thus, when death is simultaneous, the marital deduction will be allowed for the decedent's estate if the will contains a presumption that the decedent's spouse was the survivor.

Will Form: Simultaneous Death Clause

If my wife and I die under circumstances creating any doubt as to which of us survived the other, then my wife shall be presumed to have survived me.

When no presumption of survivorship is established in the decedent's will, the Uniform Simultaneous Death Act will be followed in those states in which it has been enacted. This act provides that in the event of a...