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TAX BRIEF
Under IRC Section 2056(a), an estate may claim a marital deduction for property passing to the surviving spouse. As a general rule, the law denies a deduction for "terminal interests" (those that will terminate or fail "on the lapse of time, on the occurrence of an event or contingency or on the failure of an event or contingency to occur"). This includes life estates. The Economic Recovery Act of 1981 modified the marital deduction rules by adding section 2056(b)(7), which allows a deduction for qualified terminable interest property (QTIP). In a QTIP a decedent passes to the surviving spouse a "qualifying income interest for life." Generally, when the surviving spouse has such an interest, he or she is entitled to all income from the property, payable annually or at more frequent intervals.
The nature of the interest that passes to the surviving spouse depends on the laws of the state under which the interest passes. However, the IRS is not bound to consider a state court order that modifies a trust interest. In interpreting a will, the decedent's intention is the prime consideration based on a sympathetic reading of the entire document in view of all applicable facts and circumstances. Extrinsic evidence should not be considered in the absence of ambiguity in the will.
At the time of his death on December 20, 1996, Charles N. Aronson resided in Cattaraugus County, New York. He was survived by his wife, Josephine R. Aronson (Jo), and his grandson, Barney P. Aronson (Bar), among others. Bar was the estate's executor. Charles and his wife lived on property referred to as Hundred Acres in a home called the Big House. Bar and his wife also lived on Hundred Acres in the Little House, taking care of Charles, Jo and the land.
The...