(a) Allowance of marital deduction
For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsection (b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.
(b) Limitation in the case of life estate or other terminable
interest
(1) General rule
Where, on the lapse of time, on the occurrence of an event or
contingency, or on the failure of an event or contingency to
occur, an interest passing to the surviving spouse will terminate
or fail, no deduction shall be allowed under this section with
respect to such interest -
(A) if an interest in such property passes or has passed (for
less than an adequate and full consideration in money or
money's worth) from the decedent to any person other than such
surviving spouse (or the estate of such spouse); and
(B) if by reason of such passing such person (or his heirs or
assigns) may possess or enjoy any part of such property after
such termination or failure of the interest so passing to the
surviving spouse;
and no deduction shall be allowed with respect to such interest
(even if such deduction is not disallowed under subparagraphs (A)
and (B)) -
(C) if such interest is to be acquired for the surviving
spouse, pursuant to directions of the decedent, by his executor
or by the trustee of a trust.
For purposes of this paragraph, an interest shall not be
considered as an interest which will terminate or fail merely
because it is the ownership of a bond, note, or similar
contractual obligation, the discharge of which would not have the
effect of an annuity for life or for a term.
(2) Interest in unidentified assets
Where the assets (included in the decedent's gross estate) out
of which, or the proceeds of which, an interest passing to the
surviving spouse may be satisfied include a particular asset or
assets with respect to which no deduction would be allowed if
such asset or assets passed from the decedent to such spouse,
then the value of such interest passing to such spouse shall, for
purposes of subsection (a), be reduced by the aggregate value of
such particular assets.
(3) Interest of spouse conditional on survival for limited period
For purposes of this subsection, an interest passing to the
surviving spouse shall not be considered as an interest which
will terminate or fail on the death of such spouse if -
(A) such death will cause a termination or failure of such
interest only if it occurs within a period not exceeding 6
months after the decedent's death, or only if it occurs as a
result of a common disaster resulting in the death of the
decedent and the surviving spouse, or only if it occurs in the
case of either such event; and
(B) such termination or failure does not in fact occur.
(4) Valuation of interest passing to surviving spouse
In determining for purposes of subsection (a) the value of any
interest in property passing to the surviving spouse for which a
deduction is allowed by this section -
(A) there shall be taken into account the effect which the
tax imposed by section 2001, or any estate, succession, legacy,
or inheritance tax, has on the net value to the surviving
spouse of such interest; and
(B) where such interest or property is encumbered in any
manner, or where the surviving spouse incurs any obligation
imposed by the decedent with respect to the passing of such
interest, such encumbrance or obligation shall be taken into
account in the same manner as if the amount of a gift to such
spouse of such interest were being determined.
(5) Life estate with power of appointment in surviving spouse
In the case of an interest in property passing from the
decedent, if his surviving spouse is entitled for life to all the
income from the entire interest, or all the income from a
specific portion thereof, payable annually or at more frequent
intervals, with power in the surviving spouse to appoint the
entire interest, or such specific portion (exercisable in favor
of such surviving spouse, or of the estate of such surviving
spouse, or in favor of either, whether or not in each case the
power is exercisable in favor of others), and with no power in
any other person to appoint any part of the interest, or such
specific portion, to any person other than the surviving spouse -
(A) the interest or such portion thereof so passing shall,
for purposes of subsection (a), be considered as passing to the
surviving spouse, and
(B) no part of the interest so passing shall, for purposes of
paragraph (1)(A), be considered as passing to any person other
than the surviving spouse.
This paragraph shall apply only if such power in the surviving
spouse to appoint the entire interest, or such specific portion
thereof, whether exercisable by will or during life, is
exercisable by such spouse alone and in all events.
(6) Life insurance or annuity payments with power of appointment
in surviving spouse
In the case of an interest in property passing from the
decedent consisting of proceeds under a life insurance,
endowment, or annuity contract, if under the terms of the
contract such proceeds are payable in installments or are held by
the insurer subject to an agreement to pay interest thereon
(whether the proceeds, on the termination of any interest
payments, are payable in a lump sum or in annual or more frequent
installments), and such installment or interest payments are
payable annually or at more frequent intervals, commencing not
later than 13 months after the decedent's death, and all amounts,
or a specific portion of all such amounts, payable during the
life of the surviving spouse are payable only to such spouse, and
such spouse has the power to appoint all amounts, or such
specific portion, payable under such contract (exercisable in
favor of such surviving spouse, or of the estate of such
surviving spouse, or in favor of either, whether or not in each
case the power is exercisable in favor of others), with no power
in any other person to appoint such amounts to any person other
than the surviving spouse -
(A) such amounts shall, for purposes of subsection (a), be
considered as passing to the surviving spouse, and
(B) no part of such amounts shall, for purposes of paragraph
(1)(A), be considered as passing to any person other than the
surviving spouse.
This paragraph shall apply only if, under the terms of the
contract, such power in the surviving spouse to appoint such
amounts, whether exercisable by will or during life, is
exercisable by such spouse alone and in all events.
(7) Election with respect to life estate for surviving spouse
(A) In general
In the case of qualified terminable interest property -
(i) for purposes of subsection (a), such property shall be
treated as passing to the surviving spouse, and
(ii) for purposes of paragraph (1)(A), no part of such
property shall be treated as passing to any person other than
the surviving spouse.
(B) Qualified terminable interest property defined
For purposes of this paragraph -
(i) In general
The term ''qualified terminable interest property'' means
property -
(I) which passes from the decedent,
(II) in which the surviving spouse has a qualifying
income interest for life, and
(III) to which an election under this paragraph applies.
(ii) Qualifying income interest for life
The surviving spouse has a qualifying income interest for
life if -
(I) the surviving spouse is entitled to all the income
from the property, payable annually or at more frequent
intervals, or has a usufruct interest for life in the
property, and
(II) no person has a power to appoint any part of the
property to any person other than the surviving spouse.
Subclause (II) shall not apply to a power exercisable only at
or after the death of the surviving spouse. To the extent
provided in regulations, an annuity shall be treated in a
manner similar to an income interest in property (regardless
of whether the property from which the annuity is payable can
be separately identified).
(iii) Property includes interest therein
The term ''property'' includes an interest in property.
(iv) Specific portion treated as separate property
A specific portion of property shall be treated as separate
property.
(v) Election
An election under this paragraph with respect to any
property shall be made by the executor on the return of tax
imposed by section 2001. Such an election, once made, shall
be irrevocable.
(C) Treatment of survivor annuities
In the case of an annuity included in the gross estate of the
decedent under section 2039 (or, in the case of an interest in
an annuity arising under the community property laws of a
State, included in the gross estate of the decedent under
section 2033) where only the surviving spouse has the right to
receive payments before the death of such surviving spouse -
(i) the interest of such surviving spouse shall be treated
as a qualifying income interest for life, and
(ii) the executor shall be treated as having made an
election under this subsection with respect to such annuity
unless the executor otherwise elects on the return of tax
imposed by section 2001.
An election under clause (ii), once made, shall be irrevocable.
(8) Special rule for charitable remainder trusts
(A) In general
If the surviving spouse of the decedent is the only
beneficiary of a qualified charitable remainder trust who is
not a charitable beneficiary nor an ESOP beneficiary, paragraph
(1) shall not apply to any interest in such trust which passes
or has passed from the decedent to such surviving spouse.
(B) Definitions
For purposes of subparagraph (A) -
(i) Charitable beneficiary
The term ''charitable beneficiary'' means any beneficiary
which is an organization described in section 170(c).
(ii) ESOP beneficiary
The term ''ESOP beneficiary'' means any beneficiary which
is an employee stock ownership plan (as defined in section
4975(e)(7)) that holds a remainder interest in qualified
employer securities (as defined in section 664(g)(4)) to be
transferred to such plan in a qualified gratuitous transfer
(as defined in section 664(g)(1)).
(iii) Qualified charitable remainder trust
The term ''qualified charitable remainder trust'' means a
charitable remainder annuity trust or a charitable remainder
unitrust (described in section 664).
(9) Denial of double deduction
Nothing in this section or any other provision of this chapter
shall allow the value of any interest in property to be deducted
under this chapter more than once with respect to the same
decedent.
(10) Specific portion
For purposes of paragraphs (5), (6), and (7)(B)(iv), the term
''specific portion'' only includes a portion determined on a
fractional or percentage basis.
(c) Definition
For purposes of this section, an interest in property shall be considered as passing from the decedent to any person if and only if -
(1) such interest is bequeathed or devised to such person by
the decedent;
(2) such interest is inherited by such person from the
decedent;
(3) such interest is the dower or curtesy interest (or
statutory interest in lieu thereof) of such person as surviving
spouse of the decedent;
(4) such interest has been transferred to such person by the
decedent at any time;
(5) such interest was, at the time of the decedent's death,
held by such person and the decedent (or by them and any other
person) in joint ownership with right of survivorship;
(6) the decedent had a power (either alone or in conjunction
with any person) to appoint such interest and if he appoints or
has appointed such interest to such person, or if such person
takes such interest in default on the release or nonexercise of
such power; or
(7) such interest consists of proceeds of insurance on the life
of the decedent receivable by such person. Except as provided in paragraph (5) or (6) of subsection (b), where at the time of the decedent's death it is not possible to ascertain the particular person or persons to whom an interest in property may pass from the decedent, such interest shall, for purposes of subparagraphs (A) and (B) of subsection (b)(1), be considered as passing from the decedent to a person other than the surviving spouse.
(d) Disallowance of marital deduction where surviving spouse not
United States citizen
(1) In general
Except as provided in paragraph
(2), if the surviving spouse of
the decedent is not a citizen of the United States -
(A) no deduction shall be allowed under subsection (a), and
(B) section 2040(b) shall not apply.
(2) Marital deduction allowed for certain transfers in trust
(A) In general
Paragraph (1) shall not apply to any property passing to the
surviving spouse in a qualified domestic trust.
(B) Special rule
If any property passes from the decedent to the surviving
spouse of the decedent, for purposes of subparagraph (A), such
property shall be treated as passing to such spouse in a
qualified domestic trust if -
(i) such property is transferred to such a trust before the
date on which the return of the tax imposed by this chapter
is made, or
(ii) such property is irrevocably assigned to such a trust
under an irrevocable assignment made on or before such date
which is enforceable under local law.
(3) Allowance of credit to certain spouses
If -
(A) property passes to the surviving spouse of the decedent
(hereinafter in this paragraph referred to as the ''first
decedent''),
(B) without regard to this subsection, a deduction would be
allowable under subsection (a) with respect to such property,
and
(C) such surviving spouse dies and the estate of such
surviving spouse is subject to the tax imposed by this chapter,
the Federal estate tax paid (or treated as paid under section
2056A(b)(7)) by the first decedent with respect to such property
shall be allowed as a credit under section 2013 to the estate of
such surviving spouse and the amount of such credit shall be
determined under such section without regard to when the first
decedent died and without regard to subsection (d)(3) of such
section.
(4) Special rule where resident spouse becomes citizen
Paragraph (1) shall not apply if -
(A) the surviving spouse of the decedent becomes a citizen of
the United States before the day on which the return of the tax
imposed by this chapter is made, and
(B) such spouse was a resident of the United States at all
times after the date of the death of the decedent and before
becoming a citizen of the United States.
(5) Reformations permitted
(A) In general
In the case of any property with respect to which a deduction
would be allowable under subsection (a) but for this
subsection, the determination of whether a trust is a qualified
domestic trust shall be made -
(i) as of the date on which the return of the tax imposed
by this chapter is made, or
(ii) if a judicial proceeding is commenced on or before the
due date (determined with regard to extensions) for filing
such return to change such trust into a trust which is a
qualified domestic trust, as of the time when the changes
pursuant to such proceeding are made.
(B) Statute of limitations
If a judicial proceeding described in subparagraph (A)(ii) is
commenced with respect to any trust, the period for assessing
any deficiency of tax attributable to any failure of such trust
to be a qualified domestic trust shall not expire before the
date 1 year after the date on which the Secretary is notified
that the trust has been changed pursuant to such judicial
proceeding or that such proceeding has been terminated.
[Aug. 5, 1997]
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