Marital Deduction Not Allowed for Share that Cannot be Transferred to Surviving Spouse

On April 18, 2014, the IRS denied the estate tax marital deduction for a surviving spouse’s elective share of a decedent’s estate, to the extent that it could only be satisfied from a trust in which the surviving spouse could obtain no property interest.

The decedent created the trust in a foreign country under the laws of which the spouse, who was not otherwise a beneficiary, could not obtain an interest in the trust. This was despite the fact that the laws of the U.S. state where the decedent resided gave her rights over the trust as part of her elective share of the decedent’s estate.

The IRS stated that property passing from a decedent in trust is considered to have passed to the surviving spouse only to the extent of the surviving spouse’s beneficial interest in the trust. Estate of Turner v. Comm’r, 138 T.C. 306  (2012).