Estate Planning

Qualifying for the Marital Deduction

If your gross estate exceeds $2,000,000, you may utilize the marital deduction to reduce your net estate to the point where estate tax is eliminated. To qualify for the marital deduction, your property must pass to your surviving spouse in a manner, which satisfies certain requirements. Generally, such bequests fall into three categories:

(a) Outright Bequests: An outright transfer to your wife will clearly qualify for the marital deduction. This may be accomplished by:

  1. Simply leaving property to your spouse in your will or trust;
  2. Holding property in joint name with right of survivorship; or
  3. Designating your spouse as beneficiary of life insurance or IRA benefits.

(b) General Power Marital Trust: It is often desirable to use a trust as a vehicle to provide professional management of your assets for the benefit of your spouse and family members after your death. A transfer in trust must meet certain technical requirements in order to qualify for the estate tax marital deduction. Generally, to qualify for the marital deduction a trust must satisfy the following:

  1. All income must be paid to the surviving spouse during his or her lifetime, at least annually;
  2. Principal may not be distributed to any beneficiary other than the surviving spouse during his or her lifetime; and
  3. The surviving spouse must have a general power of appointment exercisable upon his or her death, which gives her complete control over the ultimate disposition of the trust assets. Because of this general power, the General Power Marital Trust will be included in the spouse's estate for federal estate tax purposes.

(c) QTIP Marital Trust: It is sometimes desirable to use a trust, which permits the original grantor to control the ultimate disposition of trust assets upon the death of the surviving spouse. This may be accomplished with a trust designed as a Qualified Terminal Interest Property Trust ("QTIP Trust").

A terminal interest is one, which terminates upon the death of the surviving spouse, such as the spouses interest in the Bypass Trust. Ordinarily terminal interests do not qualify for the marital deduction. However, the QTIP Trust is a special exception. Generally, to qualify for the marital deduction a TIP Trust must satisfy the following requirements::

  1. All income must be paid to the surviving spouse during his or her lifetime, at least annually;
  2. Principal may not be distributed to any beneficiary other than the surviving spouse during his or her lifetime; and
  3. The decedent's personal representative must elect to take a marital deduction for all or a specific portion of the QTIP Trust. If the marital deduction is taken, the QTIP Trust will be included in the surviving spouse’s estate. Unlike the General Power Marital Trust, the surviving spouse is not required to have a general power of appointment and, thus, the original grantor retains ultimate control over the disposition of trust assets.

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