Taxation of Estates and Gifts
Terminable Interest Rule
In general, if a surviving spouse gets an interest that will terminate or fail by the lapse of time or by the occurrence or non-occurrence of an event or contingency and a third party will possess it afterwards because of a transfer from the decedent, the deceased spouse's estate cannot take a marital deduction. 26 U.S.C. § 2056(b).
- Basically, you can't deduct a life estate or term of years given to a spouse.
If the interest can only terminate within six months after the decedent's death and the termination does not occur, this is not considered an interest which will terminate or fail on the death of such spouse. 26 U.S.C. § 2056(b)(3).
- This is made for simultaneous death provisions.