South Carolina Lawyer
SC Lawyer, May 2006, #4.
The South Carolina Elective Share Marital Deduction Offset Rule
South Carolina LawyerMay 2006The South Carolina Elective Share Marital Deduction Offset RuleBy F. Ladson Boyle and S. Alan MedlinThe S.C. Probate Code (SCPC) made many changes to South Carolina probate law, but none more dramatic than the elective share. The elective share entitles the surviving spouse of a South Carolina decedent to one-third of the probate estate. The probate estate is defined as those assets passing under the decedent's will or by intestacy, less funeral and administration expenses and enforceable claims. According to the statutes, non-probate assets are not considered in the calculation of the elective share. See, however, Seifert v. Southern National Bank, 305 S.C. 353, 409 S.E.2d 337 (S.C. 1991) (subjecting assets in a decedent's inter vivos revocable trust to the elective share because the trust was invalid for being illusory); see also S.C Code Ann. § 62-7-112, enacted in response to Seifert in 1992).
Sections 62-2-206 and 62-2-207 reduce or offset the elective share amount by the value of any probate assets devised to or inherited by the surviving spouse, even if the surviving spouse disclaims the probate transfers. The SCPC specifically offsets at full value any beneficial interest left to a surviving spouse that qualifies for the federal estate tax marital deduction.
Qualifying for the marital deduction
Because the federal estate tax marital deduction plays such an important role in South Carolina elective share rights, a solid understanding of the marital deduction rules is critical for South Carolina estate planning attorneys as well as for practitioners who assist with the administration of estates in South Carolina.
Generally speaking, most property interests that pass to a surviving spouse qualify for the marital deduction. Nevertheless, as with all matters under the Internal Revenue Code, it's not that simple. The mere passing of any interest in property from the decedent to the surviving spouse is not sufficient in itself to obtain a marital deduction. The technical requirements for the estate tax marital deduction under IRC section 2056 are:
(1) the decedent must be a U.S. citizen or resident;
(2) there must be a surviving spouse B, i.e., the spouse must survive the decedent;
(3) the spouse must be a U.S. citizen;
(4) property or an interest in property must pass to the surviving spouse from the decedent;
(5) the property or interest in property transferred to the spouse must be included in the decedent's gross estate; and
(6) the surviving spouse must receive a "deductible" interest.
Typical of the Internal Revenue Code, there are exceptions to nearly every rule of the marital deduction. For example, section 2056(d) denies the estate tax marital deduction for property passing to a surviving spouse who is not a U.S. citizen. Notwithstanding the disallowance rule of section 2056(d), a marital deduction is permitted for property passing to a non-citizen surviving spouse if the assets are devised to a "qualified domestic trust," often referred to as a Q-DOT.
Of the six requirements listed above, the most problematic of these is the last one: the interest must be such that it is "deductible" rather than "nondeductible."...