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).
Income residuary withdrawal is a financial concept related to investment or retirement planning, specifically when it comes to managing income generated from investments. It refers to a systematic approach of withdrawing a portion of the residual income earned while keeping the principal amount intact. One of the key benefits of income residuary withdrawal is the ability to generate a steady income stream while preserving the capital over a specific period of time. This withdrawal strategy is commonly implemented by individuals who strive to balance their financial needs by having a steady income without exhausting their initial investments. There are two main types of income residuary withdrawal strategies: 1. Fixed Percentage Method: Under this method, a fixed percentage of the initial investment balance is withdrawn periodically. The percentage generally varies based on factors like the expected rate of return, the investor's risk tolerance, and the desired income. This strategy ensures a consistent income stream and allows individuals to estimate their future cash flows. 2. Constant Dollar Method: This approach focuses on maintaining a fixed dollar amount of income throughout the withdrawal phase. The withdrawal amount remains constant, regardless of market fluctuations or the performance of the invested assets. The constant dollar method provides a predictable income, but it may impact the duration of the withdrawal period depending on the returns earned. Both methods have their advantages and potential drawbacks. The fixed percentage method offers flexibility in adapting to market conditions, as the percentage can be adjusted based on portfolio returns. However, it may result in variable income amounts, which might not suit individuals seeking stable income. On the other hand, the constant dollar method ensures a consistent cash flow, but it may exhaust the initial investment earlier if the returns are below expectations. To implement an income residuary withdrawal strategy effectively, it is crucial to consider factors such as the individual's risk tolerance, investment objectives, time horizon, and overall financial situation. Consulting with a financial advisor is highly recommended determining the most fitting approach based on one's unique circumstances. Overall, income residuary withdrawal provides a structured and sustainable way to generate income from investments while preserving the initial capital. Utilizing the appropriate withdrawal method is essential to strike a balance between maintaining financial stability and maximizing long-term investment growth.
