Section of Taxation Publications
  VOL. 57
NO. 2
WINTER 2004
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
 
 
Can a State's Marital Deduction Savings Clause Reform a Defective Marital Deduction? Estate of Davis v. Commissioner
Edward C. Renenger

INTRODUCTION

In Estate of Davis v. Commissioner, the Tax Court held that the decedent’s estate was not entitled to an estate tax marital deduction in part because the trust established by the decedent did not contain a marital deduction gift as defined by sections 21520 and 21522 of the California Probate Code. The result in Davis is of particular interest because it is a clear example of how a state’s marital deduction savings clause could not save a defective marital deduction. This Note argues that every state’s marital deduction savings clause, with the exception of Washington, will meet the same fate. Washington’s marital deduction savings clause looks to extrinsic evidence to determine the donor’s intent. Absent taking account of extrinsic evidence, courts will only look to the trust document itself to determine the donor’s intent. If the trust document does not clearly express an intention to take advantage of the marital deduction, then the savings clause is superfluous. In other words, if the trust document itself does not evidence the donor’s intent to take advantage of the marital deduction, then a state’s marital deduction savings clause cannot possibly change that. Therefore, to preserve a marital deduction, the taxpayer should not rely on a state’s marital deduction savings clause, but instead should structure the governing document so that it will clearly qualify for the marital deduction.

Part I of this Note describes the general statutory estate tax framework, the application of the section 2056(b)(1) terminable interest limitation to the marital deduction, and the application of the section 2056(b)(5) marital deduction exemption to the terminable interest limitation. Part II sets forth the facts of Davis. Part III discusses the opinion of the Tax Court. Part IV analyzes the reasoning of the Tax Court and examines how a state’s marital deduction savings clause may remedy a defective marital deduction. Part V concludes by recommending that states extend the reach of their savings clauses to look to extrinsic evidence and that practitioners should lobby their state legislatures to bring about this change.

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Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center

 

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