The marital deduction is one of the most powerful provisions in the estate and gift tax code: transfers between US citizen spouses are generally free of estate and gift tax without limit. A married couple can pass unlimited wealth between themselves with zero transfer tax - the tax is only imposed when assets pass outside the marital unit to children or other beneficiaries. But the deduction has real limits, and for couples where one spouse is not a US citizen, the rules change dramatically.
Unlimited marital deduction (§2056 estate / §2523 gift): No dollar limit for transfers to a US citizen spouse.
Annual gift to non-citizen spouse (§2523(i)): $190,000 in 2026 (inflation-adjusted annually) - this replaces the unlimited gift marital deduction when the recipient spouse is not a US citizen.
Federal estate tax exemption: $15 million per person (OBBBA permanent, inflation-indexed).
Annual gift exclusion (§2503(b)): $19,000 per recipient in 2026 (applies in addition to the $190,000 non-citizen spouse exclusion).
IRC §2056 allows an estate to deduct the value of property passing to a surviving US citizen spouse, eliminating any estate tax on that transfer. The deduction is unlimited in amount - a $50 million estate can pass entirely to a US citizen spouse with zero estate tax. The tax is only deferred, not permanently eliminated: when the surviving spouse later dies, their estate is taxed on everything above the exemption. The marital deduction buys time but does not eliminate the eventual transfer tax.
On the gift side, IRC §2523 provides an unlimited gift tax marital deduction for gifts to a US citizen spouse. A spouse can give the other spouse any amount of property during their lifetime with no gift tax - and no use of the lifetime exemption.
Not every transfer to a spouse qualifies for the marital deduction. Terminable interests - interests that will terminate or fail on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur - do not qualify unless they fall within a specific exception. The most important exception is the QTIP trust.
A Qualified Terminable Interest Property (QTIP) trust allows a deceased spouse to provide for a surviving spouse while controlling the ultimate disposition of the assets. The QTIP trust qualifies for the marital deduction if: all trust income is paid to the surviving spouse at least annually, no one (including the surviving spouse) has a power to appoint any part of the trust to anyone other than the surviving spouse during the spouse's lifetime, and the executor makes a QTIP election on the estate tax return (Form 706).
The tax consequence of QTIP treatment: the trust assets are included in the surviving spouse's estate when they die, and the estate tax is paid then. The QTIP structure is used when the first spouse to die wants to ensure that assets ultimately pass to their own children (not the surviving spouse's future spouse or children from another relationship) while still obtaining the marital deduction.
When the surviving spouse is not a US citizen, the unlimited estate marital deduction is eliminated. The concern: a non-citizen surviving spouse could leave the US with the inherited assets, permanently removing them from US estate tax jurisdiction. Congress responded by creating the Qualified Domestic Trust (QDOT) under IRC §2056A.
A QDOT is a trust that qualifies for the marital deduction despite having a non-citizen surviving spouse as beneficiary. Requirements: at least one trustee must be a US citizen or US corporation, no distribution of principal may be made from the trust without the US trustee's approval, and the trust must meet additional requirements to ensure estate tax is collected on principal distributions and on the trust's assets at the surviving spouse's death.
The mechanics: ordinary income distributions from the QDOT to the surviving spouse are not subject to estate tax. Principal distributions are subject to the QDOT tax (effectively the estate tax that would have been owed by the first spouse) when distributed. When the surviving non-citizen spouse dies, the remaining QDOT assets are included in a "deemed estate" and the QDOT tax applies.
During lifetime, the unlimited gift marital deduction (§2523) does not apply to gifts to non-citizen spouses. Instead, IRC §2523(i) allows an increased annual exclusion of $190,000 per year (2026, inflation-indexed annually) for gifts to a non-citizen spouse. This is in addition to the regular $19,000 annual exclusion. The non-citizen spouse annual exclusion is available for any gift - cash, real estate, securities - as long as the recipient is the donor's legal spouse and is not a US citizen.
Portability allows the surviving US citizen spouse to use the deceased spouse's unused exemption (DSUE). When an estate passes entirely to the surviving spouse using the marital deduction, the first spouse's $15 million exemption is unused. Portability preserves that unused exemption for the surviving spouse's estate - but only if the executor timely files Form 706 to elect portability (within 9 months of death, or 15 months with extension).