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Unlimited Marital Deduction

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Definition: All U.S. residents can take this deduction for property transferred to a spouse who is a U.S. citizen either during life (see IRC §2523) or after death (see IRC §2056).

In addition, property passing into certain types of trusts created by one spouse for the benefit of the other spouse qualify for the unlimited marital deduction, including a marital deduction trust, a qualified terminable interest property trust (or QTIP trust), which is the "A" Trust in an AB Trust plan, or even an inter vivos qualified terminable interest property trust (or inter vivos QTIP trust), which is created for the benefit of a spouse during the Trustmaker's lifetime.

If the spouse of the person making the gift is not a U.S. citizen, then the deduction is not allowed. However, the gifting spouse can gift up to $143,000 to the non-citizen spouse in 2013 without incurring any gift tax consequences. This amount is indexed for inflation each year and will increase to $145,000 in 2014.

If the spouse of the decedent is not a U.S. citizen, then the deduction is not allowed. However, if the decedent leaves property in a properly drafted "Qualified Domestic Trust" (QDOT for short) for the benefit of the surviving non-citizen spouse, then the QDOT will qualify for the deduction.

States that collect a state estate tax also allow for the unlimited marital deduction for state estate tax purposes. In states that allow for a state only QTIP election through the use of an ABC Trust plan, the "A" Trust and "C" Trust will be QTIP trusts that qualify for the state unlimited marital deduction.

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