Federal Transfer Taxation and the Role of State Law: Does the Marital Deduction Strike the Proper Balance?
Posted: 31 Mar 2000
Across the tax law, and particularly in the transfer tax context, questions of state law often play a critical role. Where the tax law either underemphasizes or overemphasizes state law, the results can be problematic. After examining the interface between tax law and state law generally and various instances in which transfer tax law fails to strike the correct balance, the article turns its focus specifically to the marital deduction provision. It argues that the provision's passing requirement overemphasizes state law and that the Supreme Court's decision in Bosch exacerbates this overemphasis. It then considers various legislative proposals. At the very least, Bosch should be overruled so that there will no longer be any need for the Service or the federal courts to analyze whether a state court decree, or a settlement agreement, accurately reflects the rights of the parties under state law. More broadly, the passing requirement should be repealed and replaced with a rule making the deduction available as long as the property will be included in the surviving spouse's estate, whether the property passes to the spouse under state law or by a gift made to the spouse within some reasonable time after the decedent spouse's death.
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