The marital deduction allows an unlimited transfer of assets between spouses — during life (gift) or at death (estate) — completely free of federal gift and estate tax. This is one of the most powerful tax planning tools in estate planning.
Requirements: - The recipient spouse must be a U.S. citizen. (Non-citizen spouses: different rules — transfers must go through a Qualified Domestic Trust, or QDOT, to qualify.) - Assets must pass directly to the spouse or in a qualifying trust for the spouse.
At death: Assets passing outright to a surviving U.S. citizen spouse are 100% deductible from the taxable estate. No estate tax on any amount.
During life: Unlimited gifts to a U.S. citizen spouse incur no gift tax (even above the $19,000 annual exclusion).
The problem: Deferral, not elimination. The surviving spouse's estate will eventually be taxed when they die (unless assets are spent or given away). The marital deduction delays estate tax — it does not eliminate it.
AB Trust planning: Historically used to avoid "wasting" the first spouse's exemption. At first death, assets equal to the exemption amount fund a "Bypass Trust" (B Trust) for heirs; remaining assets go to the surviving spouse (A Trust) under the marital deduction. Portability has largely replaced AB trust planning.
QDOT (Qualified Domestic Trust): If the surviving spouse is not a U.S. citizen, assets must pass to a QDOT to qualify for the marital deduction.
> Exam tip: The marital deduction is unlimited — any amount. The key limitation is that the surviving spouse must be a U.S. citizen. Non-citizen spouse = no unlimited marital deduction → requires QDOT.