A United States citizen living in Canada, died and was survived by a spouse, who is a citizen of Canada. The estate valued at $18 million after expenses, passed to the surviving spouse outright. How much of the surviving spouse's interest qualifies for the marital deduction?

• A. None. There is no marital deduction for assets passing to a non-citizen spouse.
• B. $100,000 as indexed.
• C. The basic exclusion amount as indexed.
• D. Unlimited since the decedent is a U.S. citizen.

Answer: (B)

When the surviving spouse is not a U.S. citizen, the marital deduction is not unlimited. Instead, transfers to a noncitizen spouse get a limited deduction capped at an indexed fixed amount (the noncitizen spousal deduction). Here the spouse is a Canadian citizen, and the estate passes outright to them, so only the capped amount can be sheltered from estate tax. That cap is $100,000 (indexed). Therefore, only $100,000 of the $18 million qualifying for the marital deduction; the rest remains part of the decedent’s taxable estate unless planning like a QDOT is used.