Academic journal article Journal of Accountancy

Guarding Marital Deductions

Academic journal article Journal of Accountancy

Guarding Marital Deductions

Article excerpt

Property passing from a decedent to the surviving spouse generally qualifies for the marital deduction under IRC section 2056. But a terminable interest, such as a life estate in a trust created by someone other than the person receiving it, generally does not qualify. IRC sections 2056(b)(5) and (b)(7) allow the marital deduction for a terminable interest only if the surviving spouse is entitled for life to all the income from the interest and has power over the principal of the

trust, and if no other person has power to direct any part of the interest to a person other than the spouse. Treasury regulations section 20.2056(b)-5(f)(6) indicates that to meet these standards, a surviving spouse must show that he or she "is entitled to the income until the trust terminates or has the right, exercisable in all events, to have the principal distributed to her at any time during her life."

In the Davis case, Mr. Davis's trust agreement required that all income of the trust be distributed to his widow and said she could invade the trust principal if the income was insufficient to maintain her health, support and maintenance. Although Mrs. Davis was the trustee and the one who could determine whether the trust income was insufficient, the IRS concluded she did not have the necessary right to have the principal distributed to her. …

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