Lesson 8: Marital Deduction
Welcome to Lesson 8 of our Exploring Federal Estate Tax Law instructable. In this lesson, we will delve into the concept of the Marital Deduction as part of the larger topic of Exclusions and Deductions.
What is the Marital Deduction?
The Marital Deduction allows an individual to transfer an unlimited amount of assets to their spouse at any time, including at death, without incurring federal estate or gift tax liability. This deduction is a key component in estate planning as it helps defer estate taxes until the death of the surviving spouse.
Requirements for Marital Deduction
- The recipient must be a U.S. citizen.
- The deduction applies only to assets that pass directly to the spouse.
- The property must be included in the decedent's gross estate.
Qualified Terminable Interest Property (QTIP)
A QTIP trust allows the decedent to control the ultimate disposition of their assets while still providing for their spouse. Under a QTIP trust:
- The surviving spouse receives income from the trust for life.
- The principal benefits another beneficiary after the surviving spouse's death.
Example: Understanding Marital Deduction
Consider the following estate planning scenario:
John and Jane are married. John passes away and leaves all his assets to Jane. According to the marital deduction, Jane does not have to pay any estate taxes on the assets she inherits from John. However, upon Jane's death, the assets she inherited from John will be included in her estate and potentially subject to estate taxes.
Visual Representation
Calculating the Estate Tax with Marital Deduction
Let's consider a simplified formula for calculating the estate tax:
$$ Estate\\ Tax = (Gross\\ Estate - Marital\\ Deduction - Exclusions) \times Tax\\ Rate $$
Additional Resources
For a deeper understanding of the marital deduction and its impact on federal estate tax, please refer to: