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§ 8.2 FEDERAL GIFT TAX(k) Gift Tax DeductionsThe federal gift tax law provides two deductions from taxable gifts: the maritaldeduction and the charitable contribution deduction.Marital Deduction. The federal gift tax law provides an unlimited gift taxdeduction for transfers between spouses. 44 Spouses generally can make any numberof transfers between themselves, in any amount, free of gift tax. The unlimitedmarital deduction is, however, subject to a number of conditions and limitations.Generally, life estates and other terminable interests may not qualify for themarital deduction. Terminable interests are interests in property that may be terminated.If one spouse makes a transfer to a transferee spouse of an interest thatmay terminate, the transfer does not qualify for the marital deduction. Thus, themarital deduction is not available if:• the transferor spouse retains or gifts to someone other than the otherspouse an interest in the property, and such person may enjoy use or possessionof the property upon a termination, or• the transferor spouse retains a power of appointment over use or possessionof the property upon a termination.There is an exception to the terminable interest rule. Qualified terminableinterest property (QTIP) will qualify for the marital deduction if certain conditionsare met. The spouse must receive income for life and no other person mayhave a power of appointment over the property except to appoint to the otherspouse during the other spouse’s life. 45 An election must be made to take advantageof the QTIP provisions.A qualified charitable remainder trust will not be disqualified from a maritaldeduction if the other spouse is the only noncharitable beneficiary of the trust. 46The deduction is disallowed in its entirety if the other spouse is not a citizenof the United States. In its place is substituted the annual exclusion with alimit of $100,000, subject to adjustment for inflation. 47 Other special rules applyin this context.Charitable Deduction. Like federal income tax law, the federal gift tax law alsoprovides a deduction for gifts to charitable organizations. 48Citizens and residents of the United States are allowed to deduct all gifttransfers to or for the use of:• The United States, any state (including the District of Columbia), andpolitical subdivisions thereof for exclusively public purposes• Organizations organized and operated exclusively for religious, charitable,scientific, literary, or educational purposes; to foster amateur44 IRC § 2523.45 IRC § 2523(f).46 IRC § 2523(g). See Chapter 12.47 IRC § 2523(i).48 IRC § 2522. 231