Seven requirements must be met for an interest to qualify for the federal estate tax marital deduction:
1.The decedent must be legally married at the time of his or her death;
2.The person to whom the decedent is legally married at the time of his or her death must survive the decedent;
3.The surviving spouse must be a U.S. citizen (or the property must be held in a Qualified Domestic Trust.
4.The interest passing to the surviving spouse must be includable in the decedentýs gross estate in the United States;
5.The interest must pass to the surviving spouse;
6.The interest received by the surviving spouse must be a deductible interest; and
7.The value of the interest passing to the surviving spouse must be at its net value.
An interest is nondeductible to the extent that it is not includable in the decedentýs gross estate. A marital deduction will not be allowed for property that is otherwise deductible as an expense, claim or loss. No double deduction is permitted. Thus, an interest cannot qualify for the marital deduction if it otherwise is deducted under either IRC Section 2053 or Section 2054. IRC Section 2056(b)(9). For example, no marital deduction is allowed for property that passes to the surviving spouse that is used by the estate to pay the decedentýs funeral expenses.
Section 2056(c) of the IRC defines passing to include interests acquired by the surviving spouse by will, intestate succession, dower, curtesy, statutory share, right of survivorship, the exercise or default of exercise of a power of appointment, or pursuant to a life insurance beneficiary designation. The passing requirement also can be satisfied by designating the surviving spouse as the beneficiary of employee death benefits or any other annuity includable in the decedentýs gross estate under IRC Section 2039. (Treas. Reg. §20.2056(c)-1, 2, 3).
The South Dakota Marital Deduction Trust with Lifetime Income and Power of Appointment in Beneficiary Spouse and Residuary Trust is a specialized estate planning tool designed to provide certain financial benefits and protections to married couples in South Dakota. This type of trust allows one spouse (the Settler or Granter) to establish a trust fund for the benefit of the surviving spouse (the Beneficiary Spouse) after their passing. Keywords: South Dakota Marital Deduction Trust, Lifetime Income, Power of Appointment, Beneficiary Spouse, Residuary Trust, estate planning, financial benefits, Settler, Granter, surviving spouse. This trust structure provides several advantages for married individuals living in South Dakota. Firstly, the trust qualifies for the marital deduction, meaning the assets transferred into the trust upon the Settler's death are excluded from the deceased spouse's taxable estate. This deduction reduces the overall estate tax liability and can potentially benefit surviving heirs and beneficiaries. Secondly, the trust ensures that the surviving spouse has a stream of income for their lifetime, known as the "Lifetime Income" provision. This income can be generated from the trust's assets, such as rental properties, investments, or business income. The surviving spouse can also receive distributions from the principal if necessary, depending on the terms of the trust. Another crucial feature of the South Dakota Marital Deduction Trust is the "Power of Appointment." This allows the Beneficiary Spouse to have control over the disposition of the trust's assets upon their death. The surviving spouse can designate who will inherit the remaining trust assets through a testamentary power of appointment. This power provides flexibility in estate planning and enables the spouse to adapt the trust to changing circumstances. In addition to the standard South Dakota Marital Deduction Trust with Lifetime Income and Power of Appointment in Beneficiary Spouse and Residuary Trust, there may be variations or subcategories based on individual preferences or specific circumstances. These possible variations could include: 1. Charitable Marital Deduction Trust: This type of trust allows the surviving spouse to allocate a portion of the trust assets to a charitable organization or cause of their choice while still benefiting from the marital deduction. 2. Qualified Terminal Interest Property Trust (TIP Trust): A TIP trust is commonly used when one spouse has children from a previous relationship and wants to ensure that the surviving spouse is taken care of while preserving the ultimate distribution of assets to the children. 3. Marital Deduction Trust with Dynasty Provisions: This type of trust combines the benefits of the marital deduction with the ability to establish a trust that can last for multiple generations, ensuring the preservation of family wealth. It is essential to consult with an experienced estate planning attorney or financial advisor to determine the best trust structure and provisions suitable for one's specific needs and goals. Please note that laws and regulations surrounding marital deduction trusts can vary based on individual circumstances and jurisdiction, so seeking professional guidance is prudent.
