At death, all property of the decedent is included in the gross estate for estate tax. Taxable gifts made after 1976 are added to the total. The estate is allowed deductions for funeral expenses, administrative expenses, decedent’s debts, and state death taxes. Most property passing to a surviving spouse or charity is also fully deductible.
An unlimited deduction is allowed for transfers to a spouse during life and for assets passing to a surviving spouse at death. Exceptions:
- Assets passing to a spouse who is not a U.S. citizen.
- Certain terminable interests.
The marital deduction does not exclude assets from tax but rather postpones tax until the death of the second spouse. Assets that pass to a surviving spouse are included in the surviving spouse’s estate and taxed at his or her death. Transfers that could allow taxable assets to pass to someone other than the spouse without estate tax generally do not qualify for the marital deduction.