Taxation & Estate Planning

YES, A SURVIVING SPOUSE MUST SURVIVE THE DECEDENT

By Charles Rubin

Mrs. Lee passed away. Her husband then died about 45 days later. However, under the terms of Mr. Lee's estate planning documents, Mrs. Lee was deemed to have survived him and thus a distribution was made to her estate. Mr. Lee's estate sought an estate tax marital deduction for the transfer.

Mr. Lee's estate argued that Section 2056(b)(3) authorized the marital deduction, even though Mrs. Lee did not survive Mr. Lee. Section 2056(b)(3) reads:

"(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."

Not so fast, says the Tax Court. Noting that Section 2056(b)(3) exists to permit a marital deduction even if the passing of an interest to a surviving spouse is conditioned upon the spouse's surviving the decedent by a period not exceeding 6 months if the spouse in fact survives the requisite 6 months, the Court held that neither Section 2056(b)(3) nor the provisions of Mr. Lee's Last Will can change the plain language that a marital deduction is available only for a transfer to a SURVIVING spouse.

Estate Of Kwang Lee, TC Memo 2007-371

Full post as published by Rubin on Tax on January 06, 2008 (boomark / email).