Although this ?gift? from the federal government may seem too good to be true, the transfer to the surviving spouse must meet the compliance requirements to eliminate estate tax liability in the first spouse's estate; also, we must remember this procedure requires that the assets not being taxed in the first estate, must be subjected to estate tax exposure in the second estate.  The postponement of taxation in the first estate provides relief from the sometimes necessary and unwanted liquidation of assets to honor a tax obligation. With comprehensive estate planning no forced liquidation occurs, and the surviving spouse's estate plan addresses the issue of the ultimate estate tax liability without feeling that the payment of the estate taxation mandates liquidation of assets not being the intention of the client.

In order to qualify for this deduction a client must transfer assets either by last will and testament or by trust.  Obviously, the transfer by will is conceptually the easiest method of transfer to a surviving spouse that will qualify for the full marital deduction; although many clients indicate they do not want to ?burden? the survivor with the management or responsibility of an outright transfer as well as expose the assets to potential creditor claims.  The law permits the full marital deduction by a testamentary transfer to the surviving spouse in trust. One procedure is the transfer of property for the benefit of the surviving spouse in trust with the spouse given the income generated by the trust; also this trust gives the spouse the ability to dispose the trust principal to himself or herself or dispose the principal to or for the benefit of a third party.  An alternative trust disposition that qualifies for the full marital exemption while also providing the decedent with the ability to preserve the trust principal for disposition to his or her chosen ultimate beneficiaries mandates that all income generated from the trust assets be received by the surviving spouse is a very popular estate planning tool.  This trust, referred to as a Qualified Terminable Interest Property Trust- or QTIP trust, provides great peace of mind for the decedent spouse in that the assurance is created that the surviving spouse is ?provided for? as the designated beneficiary of all income generated while  the decedent retains control of the disposition of the trust principal to the ultimate beneficiaries after the second spouse's death; this is commonly referred to as ? ruling from the grave ? because the trust principal distribution will not occur until that point in time after the death of the second spouse but will pass pursuant to the intention as laid out in the predeceased first spouse estate plan.

Appropriate estate planning will incorporate the combination of the marital deduction with the unified credit (exemption amount) against estate taxation. The ?unified credit? provides an individual with the ability to dispose of assets without tax liability up to a specified amount, to any beneficiary or class of beneficiaries, as opposed to the marital deduction which must be property that is passed to the surviving spouse. The amount of the unified credit-exemption amount for the balance of the colander year 2003 is $1 million dollars; thereafter, during 2004 and 2005 this exemption amount will increase to $1,500,000 and again will increase in 2006 if the present estate tax legislation is in effect at that time. The usage of the unified credit, sometimes referred to as ?credit shelter amount? or ?bypass? as well as the marital deduction, in the will or trust will preserve assets from estate taxation upon the death of the first spouse, and, with appropriate estate planning, will preserve some or all of the assets from taxation in the second estate as well.