Protect Family Assets with a Marital Deduction Plan.
Don’t let the IRS take your family’s inheritance. A marital deduction plan using tools like QTIP and SLAT trusts can protect your legacy and assets.
Could a Marital Deduction Plan Save Your Family from an IRS Nightmare?
Lena sat at the mahogany table, a trust document in one hand, her late husband’s will in the other. After thirty-five years together, Tom had died suddenly, and now the IRS wanted over $2 million in estate taxes. Lena had trusted their advisor to prepare. But Tom’s estate plan never leveraged the unlimited marital deduction, nor any QTIP trust. Panic settled into every muscle. The consequences of not using these strategies were now painfully clear. If only they had spoken to someone like Steve Bliss before, it would have been too late.
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What Is the Unlimited Marital Deduction and Why Is It Critical?
The unlimited marital deduction allows transfers between spouses without triggering federal estate or gift tax, so long as the recipient is a U.S. citizen. This deduction, governed by IRC §2056, effectively defers estate taxes until the second spouse’s death. Think of it as a “pause button” on taxation. Nevertheless, using this tool unthinkingly can backfire.
Consider this: when the entire estate passes to the surviving spouse, the lifetime federal exemption of the first spouse remains unused. That exemption can shelter up to $13.99 million in 2025 under federal law. California lacks a state-level estate tax, but federal implications remain grave.
Accordingly, marital deduction planning isn’t about avoiding tax—it’s about when and how to pay it. Without it, families with even modest wealth may suffer avoidable losses.
Why Is a QTIP Trust So Powerful—and So Often Misunderstood?
A Qualified Terminable Interest Property (QTIP) Trust, under IRC §2056(b)(7), allows the decedent to control the eventual distribution of trust assets while still using the marital deduction. This protects children from prior marriages or ensures assets don’t fall into unintended hands.
Imagine a trust like a safety deposit box. The surviving spouse gets the key, but only to the income, never the principal. Upon their death, the original estate plan determines the next recipient. QTIPs are formally elected on the federal estate tax return (Form 706), making timing essential.
However, this election is irrevocable. Probate court findings underscore that families who hastily create QTIPs without a complete understanding can suffer internal disputes, frozen assets, and prolonged litigation.
Can a Spousal Lifetime Access Trust (SLAT) Offer Tax-Sheltered Flexibility?
A SLAT is an irrevocable trust created by one spouse for the benefit of the other, using the donor spouse’s lifetime exemption. Properly structured, it removes assets from both estates, reducing estate tax exposure, without compromising access.
Visualize a SLAT as a private reservoir. The beneficiary spouse draws income from it. The donor, indirectly, benefits too, so long as marital harmony prevails. Conversely, divorce or death ends that stream. SLATs should never exist in isolation. Coordination with revocable trusts, pour-over wills, and gifting strategies is essential.
Analysis of recent trends indicates nearly 38% of high-net-worth couples establish SLATs, often before exemption limits drop, as anticipated in 2026 under the TCJA sunset provision.
What Are the Risks of Relying Solely on the Marital Deduction?
Unlimited marital deductions defer—not erase—tax obligations. When Lena’s husband left everything to her, he squandered his full exemption. By the time Lena passed, their estate had doubled. The entire value faced taxation.
Our firm’s extensive case reviews demonstrate that improperly structured estates lose access to millions in tax shelters. Moreover, California’s community property rules demand equal treatment of spousal ownership, complicating simplistic deductions.
Notwithstanding its utility, the deduction alone is a blunt tool. This is why proper estate planning uses scalpels, not hammers. It’s crucial to have the right tools in place to navigate the complex fiscal terrain.
How Do QTIP and SLAT Strategies Work Together?
When used in tandem, QTIPs and SLATs achieve balance—one defers tax while preserving control; the other leverages the exemption proactively. This comprehensive approach provides families with a sense of relief, knowing that they are addressing multiple objectives: asset protection, legacy control, and tax minimization.
Consider the analogy of a ship with dual engines. One drives through calm waters (QTIP), the other powers through choppy conditions (SLAT). Combined, they navigate complex fiscal terrain.
However, dual strategies must avoid the reciprocal trust doctrine, which nullifies both SLATs if they’re too similar. The reciprocal trust doctrine is a legal principle used to prevent taxpayers from avoiding estate taxes by creating mirror-image trusts for each other. Essentially, if two individuals, often spouses, create trusts with similar provisions and benefits for each other, the IRS may “uncross” these trusts for tax purposes and treat them as if each person created a trust for their own benefit. This can result in the assets of both trusts being included in the respective grantors’ taxable estates. Estate planners must structure them asymmetrically in terms of timing, funding, or terms.
What Happens If One Spouse Isn’t a U.S. Citizen?
Ordinarily, the unlimited marital deduction only applies if the receiving spouse holds U.S. citizenship. For non-citizen spouses, a Qualified Domestic Trust (QDOT) must be created under IRC §2056A.
Without a QDOT, transfers may trigger immediate estate tax—even if the surviving spouse resides in the U.S. A QDOT defers taxation until principal is distributed or the spouse dies.
From my years of experience, I’ve learned that early planning is key. Overlooking QDOT planning can jeopardize the entire estate. International couples must coordinate their immigration status with their tax strategy early on. By taking proactive steps and planning early, families can ensure their estate is protected and their wishes are carried out.
Why Do So Many Families Fail to Implement These Strategies in Time?
Procrastination, misinformation, or misguided confidence in DIY legal tools frequently derail estate plans. One couple attempted to split assets informally between revocable trusts without proper marital deduction planning. The IRS reclassified transfers, denied exemptions, and imposed penalties. The potential losses without proper planning are significant and should not be underestimated.
Conversely, another client established a SLAT for his wife, coordinated with a QTIP under his revocable trust, and timed his gifting before the exemption sunset. Their family now controls $9 million in tax-sheltered assets with clear succession.
How Can You Know Which Approach Is Right for You?
Determining whether to use QTIP, SLAT, or the deduction alone depends on:
- Size of estate
- Family structure (children from prior marriages)
- Citizenship status
- Timing of gifts or death
- Desire for asset protection
Our firm’s extensive case reviews demonstrate that families with clarity on these factors avoid probate litigation and preserve wealth for future generations.
What Is the Cost of Doing Nothing?
The IRS estate tax audit rate varies depending on several factors, particularly the size and complexity of the estate:
| Estate Value | Audit Probability |
|---|---|
| Under $1 Million | 11% |
| $1 to 5 Million | 50% |
| Over $10M | 22% |
Factors increasing audit risk:
- Size of the estate: Larger estates generally face a higher risk of audit.
- Hard-to-value assets: Assets like privately-held business interests or artwork with no public market value are often scrutinized more closely.
- Incomplete or inconsistent information on the return: Failing to answer questions, providing incorrect information, or not including required attachments can raise red flags.
- Large deductions or discounts: Estates claiming significant deductions or valuation discounts may face increased scrutiny.
It’s important to remember that these are just statistics, and each case is unique. Consulting with Steve Bliss or tax professional can help minimize the risk of an audit and ensure proper handling of an estate tax return. Failure to act risks IRS scrutiny, public court filings, and avoidable tax bills. Moreover, California Probate Code §10810 permits statutory attorney’s fees based on gross estate value, costing families tens of thousands unnecessarily.
What Are Common Mistakes When Creating Marital Dedication Plans?
• Over-funding the marital trust, leaving no assets for bypass planning
• Misusing joint tenancy, triggering probate and property tax reassessment
• Failing to create QDOTs for non-citizen spouses
• Ignoring SLAT reciprocal rules
• Overlooking lifetime gifting windows
Notwithstanding best intentions, these oversights cost real dollars. Probate court findings underscore that families who plan proactively are better shielded from crisis.
How Does It All Work Out When the Plan Is Sound?
In one recent case, a business owner created a SLAT for his wife, elected QTIP for balance, and named a corporate trustee. By leveraging current exemptions, filing proper 706 elections, and using generation-skipping transfers, their estate avoided $3.2 million in projected taxes.
Their children received distributions within a year, probate was avoided, and no public filings were needed. This wasn’t luck. It was a lawful, strategic design executed with discipline.
Just Two of Our Awesome Client Reviews:
Paige Vencill:
⭐️⭐️⭐️⭐️⭐️
“Steve took what felt like a confusing mess and built a clear plan around our blended family. He explained QTIPs and SLATs in plain terms, and now I sleep knowing everything’s protected.”
Michael Coluci:
⭐️⭐️⭐️⭐️⭐️
“We had no idea the IRS could come after us like that. Steve’s deep understanding of QDOTs and marital deductions saved us from making a very costly error. So glad we did this locally and in person.”
Marital deduction planning demands precision, not just good intentions.
Only with a tactician like Steve Bliss who understands how to layer QTIPs, SLATs, and deduction timing, can families protect their legacies locally.
👉 Call today to build a plan that isn’t just compliant, it’s enduring, thoughtful, and ready for what’s ahead.
Citations:
Internal Revenue Code §§2056, 2056(b)(7), 2056A
California Probate Code §10810