§ 25.2523(i)-1. Disallowance of marital deduction when spouse is not a United States citizen.

In 1995, D, a United States citizen, transfers to S, outright, 100 shares of X corporation stock valued for federal gift tax purposes at $130,000. The transfer is a gift of a present interest in property under section 2503(b). Additionally, the gift qualifies for the gift tax marital deduction except for the disallowance provision of section 2523(i)(1). Accordingly, $100,000 of the $130,000 gift is excluded from the total amount of gifts made during the calendar year by D for gift tax purposes.

In 1995, D, a United States citizen, retires from employment in the United States and elects to receive a reduced retirement annuity in order to provide S with a survivor annuity upon D's death. The transfer of rights to S in the joint and survivor annuity is a gift by D for gift tax purposes. However, under paragraph (b) of this section, the gift qualifies for the gift tax marital deduction even though S is not a United States citizen.

In 1995, D, a resident alien, transfers property valued at $500,000 in trust to S, who is also a resident alien. The trust instrument provides that the trust income is payable to S at least quarterly and S has a testamentary general power to appoint the trust corpus. The transfer to S qualifies for the marital deduction under section 2523 but for the provisions of section 2523(i)(1). Because S has a life income interest in the trust, S has a present interest in a portion of the trust. Accordingly, D may exclude the present value of S's income interest (up to $100,000) from D's total 1995 calendar year gifts.

The facts are the same as in Example 3, except that S does not have a testamentary general power to appoint the trust corpus. Instead, D's child, C, has a remainder interest in the trust. If S were a United States citizen, the transfer would qualify for the gift tax marital deduction if a qualified terminable interest property election was made under section 2523(f)(4). However, because S is not a U.S. citizen, D may not make a qualified terminable interest property election. Accordingly, the gift does not qualify for the gift tax marital deduction but for the disallowance provision of section 2523(i)(1). The $100,000 annual exclusion under section 2523(i)(2) is not available with respect to D's transfer in trust and D may not exclude the present value of S's income interest in excess of $10,000 from D's total 1995 calendar year gifts.

a United States citizen, transfers a residence valued at $350,000 on December 20, 1995, to D's spouse, S, a resident alien. On January 31, 1996, S becomes a naturalized United States citizen. On D's federal gift tax return for 1995, D must include $250,000 as a gift ($350,000 transfer less $100,000 exclusion). Although S becomes a citizen in January, 1996, S is not a citizen of the United States at the time the transfer is made. Therefore, no gift tax marital deduction is allowable. However, the transfer does qualify for the $100,000 annual exclusion.