Marital Deduction
An unlimited tax deduction that allows one spouse to transfer any amount of assets to the other spouse during life or at death without incurring estate or gift tax. Both spouses must be U.S. citizens.
Legal Definition
An unlimited deduction under IRC §2056 (estate tax) and IRC §2523 (gift tax) for qualifying property transferred to a surviving spouse who is a U.S. citizen, effectively deferring transfer tax until the death of the surviving spouse.
Practical Example
When Richard dies, he leaves his entire $20 million estate to his wife. Despite being well above the estate tax exemption, no estate tax is owed because of the unlimited marital deduction. However, tax may be owed when his wife eventually dies.