Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, May 1, 2014

Spouse Denied Marital Deduction

Scales of justice

Prior to his death, a decedent created an irrevocable trust in which he transferred capital of multiple companies.  The decedent designated himself and his child as beneficiaries of the trust.  Because the trust was created in another country, it was not subject to laws of the United States.  Yet, at decedent’s death, he was survived by his spouse who asserted her right to the elective share of his estate. 

The question then arose as to which laws will apply.  The IRS analyzed both the laws of the country that governed the trust’s administration and the laws of the state where the decedent was a resident, and decided that the trust assets were governed by the laws of the country.  Under the country’s laws, the decedent’s child, not his spouse, was the beneficial owner of the trust assets at the time of the decedent's death. 

Decedent’s spouse was unable to take a marital deduction under IRC Section 2056 for the elective share relating to the trust property.  The IRS looked at IRC Section 2056 to determine whether the spouse’s interest was considered as having “passed” when the spouse was not the beneficial owner of property to satisfy the bequest.  In determining the interest did not pass, the IRS declined to give the spouse trust assets to satisfy the elective share since she was not the beneficial owner. 

See Dawn Markowitz, Marital Deduction for Full Amount Denied, Wealth Management, Apr. 29, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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