Issues Concerning Section 2056(d) Of The Tax Code

M. Chalmers Middleton II (Merline & Meacham), Issues Concerning Section 2056(d) of the Tax Code, 75 S.C. L. Rev. 391 (2023):

The Estate Tax Marital Deduction currently provides an unlimited deduction against estate taxes for any bequest to a surviving spouse. However, Section 2056(d) disallows the use of this deduction when the surviving spouse is not a United States citizen. This is unless the bequest is put into a Qualified Domestic Trust for the benefit of the surviving foreign spouse. 

However, any distributions from this trust that are not made from the trust income or for hardship will be taxed. Similarly, the final disposition of such trust, regardless of who the final beneficiaries are, will also be taxed. This creates a significant issue of unfair tax treatment towards a person simply because they are not a U.S. citizen, even though, for resident non-citizens, they will eventually be subject to the estate tax or to a similar tax which would prevent them from leaving the U.S. with a large sum of tax-free property. The rules provided under Section 2056(d) and 2056A are unfair and can cause unlawful deterrents against marriage and should be repealed or amended.