Marital deduction lost when children let mom have it all

Article Abstract:

TAM 9610004 found that marital deduction was lost because of ineffective post-mortem planning despite the fact that the surviving spouse became the recipient of the whole estate as a result of a court-permitted agreement with her children. The IRS judged that the property did not pass from the decedent as required because neither a bona fide settlement reflecting underlying claims nor a qualified disclaimer was present. Reg. 20.2056(c)-2(d)(2) holds that if a property interest is surrendered to the surviving spouse, it is considered as passing from the decedent only if it can be considered a bona fide recognition of enforceable rights of the surviving spouse in the estate of the decedent. This requirement is met when a probate court judges in an adversarial case after a genuine and active contest. An agreement not to probate a will does not necessarily satisfy this requirement.

Decedents' estates

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Marital deduction lost if rights end with incompetency

Article Abstract:

An interest in a trust was denied marital deduction in TAM 9644001 because the rights of the surviving spouse were rested on the ability to remain competent. Under the terminable interest rule, marital deduction is generally not allowed for a surviving spouse's interest that will terminate or fail with the passage of time, or with occurrence of an event or the satisfaction of the condition. An exemption to this rule is available under Sec. 2056(b)(5) to a life estate in property with a power of appointment in the surviving spouse. However, the IRS found that the trust in TAM 9644001 did not qualify for the exemption because it failed to meet the requirement that the surviving spouse be entitled for life to all of the income from the interest. The surviving spouse would not necessarily receive the accumulated income if he were subsequently found to be incompetent.

Trusts and trustees, Trustees, Trusts (Law), Spouse's share

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Marital deduction not allowed for settlement payment

Article Abstract:

The Court of Appeals for the Fourth Circuit concluded in 'Estate of Carpenter' that the property transferred by an estate to a widow in settling a will dispute is not eligible for marital deduction. The court justified its decision by stating that the interest of the widow in the estate before the settlement was not a qualifying interest. This contradicts the state's argument that her interest qualified under Sec. 2056(b)(5) because she had a life estate and her power as a trustee to join the trust body was a general power of appointment. The Fourth Circuit, however, held that the interest of the surviving spouse did not meet two of the requirements provided in Reg. 20.2056(b)-5. The court found that she did not have the power to appoint the whole interest to either herself or her estate and that her power is not exercisable by her alone and at all times.

United States. Court of Appeals for the 4th Circuit

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