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Apply the marital deduction, portability, insurance and retirement inclusion, and estate filing rules
When one spouse dies, the tax law does two things at once: it defers tax on what passes to the survivor and it counts what the decedent controlled, including insurance and retirement benefits. This lesson works that pair in order: the marital deduction and the portability election that preserves unused exclusion, the inclusion rules for life insurance and annuities, and the filing map that separates the estate tax return from the estate income return.
Property passing from the estate to the surviving spouse generally carries the marital deduction at its value, which is why outright spousal bequests to a U.S.-citizen spouse shrink the taxable estate while bequests to children do not — except nondeductible terminable interests unless QTIP is elected, disclaimed interests, and noncitizen-spouse transfers without a QDOT.
A terminable interest such as a life estate, annuity, or term of years is nondeductible where another interest in the same property passed from the decedent to another person for less than full consideration and that person may enjoy the property after the spouse's interest ends; only a QTIP election cures this, for property passing from the decedent in which the spouse has a qualifying income interest for life with a section 2056(b)(7) election made by listing on Schedule M line 4, irrevocable, with the QTIP later included in the surviving spouse's gross estate.
Where the surviving spouse is not a U.S. citizen, the deduction is allowed only if the property passes in a QDOT or is irrevocably assigned to a QDOT before the return is filed; a QDOT needs a U.S.-citizen or domestic-corporation trustee with the right to withhold tax on corpus distributions, must meet the regulations, and must be elected on the return, irrevocably.
Unused exclusion can travel too: where the executor elects transfer of the DSUE amount (the deceased spousal unused exclusion), the surviving spouse applies it against later lifetime gifts and death transfers, except a nonresident noncitizen surviving spouse takes DSUE only to the extent allowed by treaty. Where a QDOT is established, the executor elects portability with a preliminary DSUE amount that generally cannot be applied against tax on lifetime gifts until it is finally determined — usually on the surviving spouse's death or QDOT termination, or when the spouse becomes a U.S. citizen so the section 2056A tax no longer applies. That election belongs on a timely Form 706, filed within 9 months of death or before the 6-month extension period ends. An estate with no filing requirement under section 6018(a) that missed timely portability may file on or before the fifth anniversary of death under Rev. Proc. 2022-32, stating at the top of the return that it is filed pursuant to that procedure to elect portability.
Nora died leaving $1,000,000 outright to her husband, a U.S. citizen, and $600,000 to her sister. The estate claims a $1,000,000 marital deduction for the spousal share; the sister's share generates none. Had Nora left her husband only a life estate with the remainder to her sister, no deduction arises unless the executor makes the QTIP election on Schedule M. To preserve Nora's unused exclusion for her husband's later gifts, the executor files a timely Form 706 electing portability, even though the estate owes no tax.
Publication 559 Page 39
The marital deduction (generally, the value of the property that passes from the estate to the surviving spouse),View on the source
Form 706 Instructions Page 21
If the executor of the decedent’s estate elects transfer, or portability, of the DSUE amount, the surviving spouse can apply the DSUE amount received from the estate of the surviving spouse’s last deceased spouse (defined later) against any tax liability arising from subsequent lifetime gifts and transfers at death.View on the source
Form 706 Instructions Page 3
An executor can only elect to transfer the DSUE amount to the surviving spouse if the Form 706 is filed timely, that is, within 9 months of the decedent’s date of death or, if you have received an extension of time to file, before the 6-month extension period ends.View on the source
Form 706 Instructions Page 3
Extension to elect portability. Executors who did not have a filing requirement under section 6018(a) but failed to timely file Form 706 to make the portability election may be eligible for an extension under Rev. Proc. 2022-32, 2022-30 I.R.B. 101 (superseding Rev. Proc. 2017-34, 2017-26 I.R.B. 1282). Executors filing to elect portability may now file Form 706 on or before the fifth anniversary of the decedent’s death.View on the source
Form 706 Instructions Page 43
Generally, you may list on Schedule M (Form 706) all property interests that pass from the decedent to the surviving spouse and are included in the gross estate. However, do not list any Nondeductible terminable interests (described later) on Schedule M (Form 706) unless you are making a QTIP election.View on the source
Form 706 Instructions Page 43
Unless you are making a QTIP election, do not enter a terminable interest on Schedule M (Form 706) if: 1. Another interest in the same property passed from the decedent to some other person for less than adequate and full consideration in money or money’s worth; and 2. By reason of its passing, the other person or that person’s heirs may enjoy part of the property after the termination of the surviving spouse’s interest.View on the source
Form 706 Instructions Page 45
Qualified terminable interest property (QTIP) is property (a) that passes from the decedent, (b) in which the surviving spouse has a qualifying income interest for life, and (c) for which election under section 2056(b)(7) has been made.View on the source
Form 706 Instructions Page 45
The surviving spouse has a qualifying income interest for life if the surviving spouse is entitled to all of the income from the property payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and during the surviving spouse’s lifetime no person has a power to appoint any part of the property to any person other than the surviving spouse.View on the source
Form 706 Instructions Page 45
listing the QTIP on line 4 of Schedule M (Form 706) and inserting its value. You are presumed to have made the QTIP election if you list the property and insert its value on Schedule M (Form 706). If you make this election, the surviving spouse’s gross estate will include the value of the QTIP. See the instructions for Form 706, Part IV, line 7, for more details. The election is irrevocable.View on the source
Form 706 Instructions Page 45
The marital deduction is allowed for transfers to a surviving spouse who is not a U.S. citizen only if the property passes to the surviving spouse in a QDOT or if such property is transferred or irrevocably assigned to a QDOT before the decedent’s estate tax return is filed.View on the source
Form 706 Instructions Page 45
1. That requires at least one trustee to be either a citizen of the United States or a domestic corporation, 2. That requires that no distribution of corpus from the trust can be made unless such a trustee has the right to withhold from the distribution the tax imposed on the QDOT, 3. That meets the requirements of any applicable regulations, and 4. For which the executor has made an election on the estate tax return of the decedent.View on the source
Form 706 Instructions Page 45
Once made, the election is irrevocable.View on the source
Form 706 Instructions Page 21
Note: A nonresident surviving spouse who is not a citizen of the United States may not take into account the DSUE amount of a deceased spouse, except to the extent allowed by treaty with the nonresident surviving spouse’s country of citizenship.View on the source
Form 706 Instructions Page 3
An executor wishing to elect portability under this extension must state at the top of the Form 706 being filed that the return is “Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under section 2010(c)(5) (A).”View on the source
Form 706 Instructions Page 24
When a QDOT is established and there is a DSUE amount, the executor of the decedent’s estate will determine a preliminary DSUE amount for the purpose of electing portability. This amount will decrease as section 2056A distributions are made.View on the source
Form 706 Instructions Page 24
In estates with a QDOT, the DSUE amount generally may not be applied against tax arising from lifetime gifts because it will not be available to the surviving spouse until it is finally determined, usually upon the death of the surviving spouse or when the QDOT is terminated.View on the source
Form 706 Instructions Page 24
Note: If a surviving spouse who is not a citizen of the United States becomes a citizen and the section 2056A tax no longer applies to the assets of the QDOT, as of the date the surviving spouse becomes a U.S. citizen, the DSUE amount is considered final and is available for application by the surviving spouse.View on the source
A decedent's will leaves a rental property to a surviving citizen spouse for life, remainder to the decedent's children. Which of the following is correct regarding the marital deduction?
Control at death is what pulls insurance and retirement benefits into the estate. Life insurance proceeds on the decedent's life are included where the decedent held incidents of ownership: the power to change the beneficiary, to surrender or cancel, to assign, to pledge for a loan, or to borrow against surrender value, among others. It makes no difference that a child or spouse collects the check. Annuities follow the parallel test: in general, all or part of the value of any annuity meeting the test is included where the benefit is receivable by a beneficiary by reason of surviving the decedent, under a contract entered into after March 3, 1931, that was payable to the decedent. Where the decedent contributed only part of the purchase price, only the decedent's-contribution over total-price share of the survivor's annuity is included; employer contributions made because of the decedent's employment count as the decedent's under section 2039(b). The rule names pension plans and individual retirement arrangements alongside commercial and private annuities, so an IRA with a named beneficiary counts.
Victor owned a $750,000 policy on his own life and kept the right to change the beneficiary until death; the proceeds go to his daughter. The full $750,000 is included because the retained power is an incident of ownership. Victor also held a $180,000 IRA naming his son. The $180,000 is included as an annuity-type benefit receivable by the son by reason of surviving Victor. A separate policy Victor's brother owned on the brother's own life is absent from Victor's return entirely.
Form 706 Instructions Page 31
Include on Schedule D (Form 706) the proceeds of all insurance on the life of the decedent not receivable by, or for the benefit of, the decedent’s estate if the decedent possessed at death any of the following incidents of ownership, exercisable either alone or in conjunction with any person or entity.View on the source
Form 706 Instructions Page 31
The power to change the beneficiary. • The power to surrender or cancel the policy.View on the source
Form 706 Instructions Page 37
These rules apply to all types of annuities, including pension plans, individual retirement arrangements (IRAs), purchased commercial annuities, and private annuities.View on the source
Form 706 Instructions Page 37
It is receivable by a beneficiary following the death of the decedent and by reason of surviving the decedent. • The annuity is under a contract or agreement entered into after March 3, 1931. • The annuity was payable to the decedent (or the decedent possessed the right to receive the annuity), either alone or in conjunction with another, forView on the source
Form 706 Instructions Page 37
In general, you must include in the gross estate all or part of the value of any annuity that meets the following requirements.View on the source
Form 706 Instructions Page 37
If the decedent contributed only part of the purchase price of the contract or agreement, include in the gross estate only that part of the value of the annuity receivable by the surviving beneficiary that the decedent’s contribution to the purchase price of the annuity or agreement bears to the total purchase price.View on the source
Form 706 Instructions Page 37
contributions made by the decedent’s employer to the purchase price of the contract or agreement are considered made by the decedent if they were made by the employer because of the decedent’s employment. For more information, see section 2039(b).View on the source
At death the decedent owned a $400,000 life insurance policy on the decedent's own life, naming the decedent's daughter as beneficiary, and retained the power to change the beneficiary and to surrender the policy. Which of the following is correct regarding the gross estate?
Two returns can follow one death, and they measure different things.
| Return | Reports | Trigger |
|---|---|---|
| Form 706 | Estate and GST tax | Gross estate plus adjusted taxable gifts plus specific exemption above the basic exclusion amount, or a portability election |
| Form 1041 | Estate income during administration | Gross income of $600 or more, or a nonresident-alien beneficiary |
Form 706 is due within 9 months after death, with an automatic 6-month extension through Form 4768; the underlying tax is due within 9 months as well. Form 1041 follows the income tax calendar for the estate's year. A taxable estate with rental income therefore files both: the transfer tax return for the death-time transfer and the income return for the administration-period earnings.
Edith died on February 2, leaving a taxable estate. Her executor must file Form 706 by early November (9 months after death), extending to the following May on Form 4768 where needed. The estate also collected $3,000 of dividends before distribution, so the fiduciary files Form 1041 for that income year as well, since $3,000 exceeds the $600 threshold.
Form 706 Instructions Page 3
You must file Form 706 to report estate and/or GST tax within 9 months after the date of the decedent’s death. If you are unable to file Form 706 by the due date, you may receive an extension of time to file.View on the source
Form 706 Instructions Page 3
The estate and GST taxes are due within 9 months of the date of the decedent’s death.View on the source
Form 1041 Instructions Page 5
The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has: 1. Gross income for the tax year of $600 or more; 2. A beneficiary who is a nonresident alien; orView on the source
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An estate tax return must be filed if the gross estate, plus any adjusted taxable gifts and specific gift tax exemption, is more than the basic exclusion amount.View on the source
Form 706 Instructions Page 2
To determine whether you must file a return for the estate under 1 above, add: • The adjusted taxable gifts (as defined in section 2503) made by the decedent after December 31, 1976; • The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and • The decedent’s gross estate valued as of the date of death.View on the source
An estate holds life insurance and an IRA that were includible at death, and after death it also collects $8,000 of dividends and $5,000 of rent. Which of the following correctly chooses between Form 706 and Form 1041?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
See the course Or take the free 12-question checkGroundSkill is independently produced and is not affiliated with or endorsed by the IRS. Sources last checked 2026-09-14. Exam preparation, not tax advice.