Marital deduction
Marital deduction is a type of tax law that allows a person to give assets to his or her spouse with reduced or no tax imposed upon the transfer. Some marital deduction laws even apply to transfers made postmortem. The right to receive property conveys ownership for tax purposes. A decree of divorce transfers the right to that property by reason of the marriage and is also a transfer within a marriage. It makes no difference whether the property itself or equivalent compensation is transferred before, or after the decree dissolves the marriage. There is no U.S. estate and gift tax on transfers of any amount between spouses, whether during their lifetime or at death. There is an important exceptions for non-citizens. The U.S. federal Estate and gift tax marital deduction is only available if the surviving spouse is a U.S. citizen. For a surviving spouse who is not a U.S. citizen a bequest through a Qualified Domestic Trust defers estate tax until principal is distributed by the trustee, a U.S. citizen or corporation who also withholds the estate tax. Income on principal distributed to the surviving spouse is taxed as individual income. If the surviving spouse becomes a U.S. citizen, principal remaining in a Qualifying Domestic Trust may then be distributed without further tax. Background The American taxation system began when President Abraham Lincoln imposed taxes to fund the revenue required for the Civil War. After much debate, America revoked its tax system until 1894 when the Wilson Tariff Act was enacted. Half a century later, deductions were formed through legislation. Now, America maintains a federal, state, and local taxation system. On March 1, 1994, legislators defined martial deductions under Section § 20.2056(a)-(1) as allowing a decedent's surviving spouse to deduct the value of any property interest that passes to them from their gross estate if the interest is a deductible interest. See § 20.2056(a)-(2) to determine if the interest is a deductible interest. Credits v. Deductions Over time, tax credits were established in addition to tax deductions. Deductions are transfers between spouses that last a lifetime and are appointed by will which are eligible for a deduction on the federal tax form. Credits are the sum deducted from one's payment owed to the federal, state, or local entity. Credits allow taxpayers to pay less in taxes, while deductions can reduce taxable income. Credits are more preferable, but taxpayers are more likely to receive deductions than credits. Taxpayers may receive deductions for home, medical, and educational expenses; while credits may include earned income tax credits, child care/dependent credits, and individual retirement arrangements. See the table below for an illustrative explanation. Litigation Requirements for the Deduction Gifts from a spouse may be eligible for marital deductions if the following requirements are met: (1) martial status requirement; (2) citizenship requirement; and (3) the interest must not conclude due to the cause of a certain event or after a specified amount of time has passed. To satisfy the marital status requirement, the