Taxable Estate Deductions: Funeral, Debts, Admin Costs, Marital

This eligibility guide helps you check, step by step, whether an estate can reduce its federal estate tax bill by claiming key deductions and, in particular, whether a non‑U.S.-citizen surviving spouse can qualify for the marital deduction through a QDOT. It also explains how these choices affect the final taxable estate and what to do if you don’t meet the rules today.

Quick Eligibility Snapshot

• You can reduce the gross estate to a lower taxable estate by claiming one or more federal deductions: funeral expenses, debts and claims, administrative expenses, marital deduction, charitable deduction, state death tax deduction, and casualty or theft losses.
• The marital deduction is unlimited when the surviving spouse is a U.S. citizen and the property passes to that spouse.
• If the surviving spouse is not a U.S. citizen, the marital deduction is allowed only if the assets pass to a QDOT (Qualified Domestic Trust). Without a QDOT, the marital deduction is generally not available.
• Estates below the 2025 federal exemption of $12.92 million per person owe no federal estate tax. Above that amount, the top rate is 40%.
• Portability may allow a surviving spouse to use any unused exemption from the first spouse’s estate, with proper elections.

Eligibility for Each Deduction That Lowers the Taxable Estate

To reduce the estate’s tax exposure, confirm whether the estate meets the basic yes/no criteria for each deduction:

• Funeral expenses: Yes, if the estate paid reasonable funeral costs.
• Debts and claims: Yes, if the decedent owed valid debts at death or had enforceable claims (e.g., unpaid taxes, judgments).
• Administrative expenses: Yes, if the estate incurred court fees, executor fees, attorney fees, or accounting fees during administration.
• Marital deduction:
  • Yes, if property passes to a surviving spouse who is a U.S. citizen.
  • Yes, if the spouse is not a U.S. citizen and the property passes to a qualifying QDOT.
• Charitable deduction: Yes, if property passes to a qualified charity for exclusively charitable purposes.
• State death tax deduction: Yes, if the estate actually paid state estate, inheritance, legacy, or succession tax.
• Casualty or theft losses: Yes, if a loss happened during administration and insurance did not cover it.

If you answer “yes” to any of the above, you can subtract those amounts from the gross estate to reach a lower taxable estate.

Marital Deduction Eligibility: Citizen, Non‑Citizen, and QDOT

• U.S.-citizen spouse: The estate can claim an unlimited marital deduction for property passing to the surviving spouse. This effectively postpones federal estate tax until the survivor’s death.
• Non‑U.S.-citizen spouse: The marital deduction is generally not allowed unless the property passes to a QDOT. A QDOT is a trust that ensures the U.S. can collect estate tax later—typically when certain principal distributions are made or at the non‑citizen spouse’s death.
• Limited interests (QTIP): If the spouse’s interest is a life-income interest rather than full ownership, a QTIP election can still allow a marital deduction if the technical requirements are satisfied.

According to analysis by VisaVerge.com, couples with a non‑citizen surviving spouse often use a QDOT to keep the marital deduction and avoid an immediate estate tax hit, while planning for taxes that may come due later.

Disqualifying Factors to Watch

• Non‑citizen spouse inherits outright with no QDOT: marital deduction generally disallowed.
• Charitable gifts that are not exclusively charitable: no charitable deduction if a private benefit exists.
• State death taxes not actually paid: no deduction for estimates or unpaid amounts.
• Casualty/theft losses covered by insurance: no deduction when reimbursement exists.
• Administrative or funeral expenses not paid by the estate: no deduction if paid personally by someone else without reimbursement.

Any of these issues can push you to a higher taxable estate than expected.

Practical Examples

• Citizen spouse, direct inheritance: A decedent leaves a home and investment account to a U.S.-citizen spouse. The estate deducts the full value under the marital deduction. If the remaining gross estate minus all deductions falls below $12.92 million, no federal estate tax is due.
• Non‑citizen spouse, QDOT in place: A decedent leaves assets to a non‑citizen spouse through a QDOT. The estate claims the marital deduction because the trust qualifies. Estate tax is postponed, though tax can apply to later principal payouts or at the spouse’s death, per QDOT rules.
• Charity bequest: A decedent leaves part of the estate to a Section 501(c)(3) charity for exclusively charitable purposes. The estate claims a full charitable deduction for that amount, lowering the taxable estate.
• State death tax paid: The estate pays a state estate or inheritance tax. That amount is deductible on the federal return, further reducing the taxable estate.

Alternatives if You’re Not Currently Eligible

• For a non‑citizen spouse, set up a QDOT so the marital deduction becomes available. Without it, the estate may face immediate federal estate tax on amounts over the exemption.
• Increase charitable giving in the will or trust to claim the charitable deduction and reduce the taxable estate.
• Confirm and document all debts, claims, funeral, and administrative expenses paid by the estate to capture every allowed deduction.
• If the surviving spouse is a U.S. citizen and the marital deduction is available, consider a QTIP election if you want to limit property use while still securing the deduction.

How to Improve Your Chances

• Establish a QDOT early if a spouse is not a U.S. citizen. Ensure the trust terms meet federal requirements so the marital deduction applies.
• Keep clear records of all deductible payments: invoices, receipts, and proof of payment during administration.
• Verify charities are qualified and gifts are exclusively charitable.
• Track any state estate or inheritance tax actually paid and keep receipts for the federal deduction.
• Consider portability planning so a surviving spouse can use any unused exemption with proper filings.

Exemption, Rates, and Portability Check

• Federal exemption (2025): $12.92 million per individual
• Top rate above the exemption: 40%
• Portability: With proper elections, a surviving spouse may use the deceased spouse’s unused exemption, increasing protection for the second estate.

These figures interact with deductions: the more deductions you capture, the lower the taxable estate and the less likely you’ll exceed the exemption.

Filing, Forms, and Official Sources

• Estates use Form 706 (United States Estate (and Generation‑Skipping Transfer) Tax Return) to report the gross estate, deductions, and the final taxable estate. Access the form and instructions on the IRS site: Form 706.
• For broader guidance to survivors, executors, and administrators, see IRS Publication 559 on the official IRS website: IRS Publication 559.

Use these primary sources to confirm current rules and to help prepare the filing.

State Estate and Inheritance Tax Notes

Several states still impose estate or inheritance taxes, with rules that differ from federal law. The federal state death tax deduction only applies to amounts actually paid to a state (or the District of Columbia). This can further reduce the taxable estate reported on Form 706.

Always confirm state deadlines and required filings, since missing a state payment could cost you the federal deduction.

Common Mistakes That Hurt Eligibility

• Forgetting a QDOT when the spouse is not a U.S. citizen, which removes access to the marital deduction.
• Claiming a charitable deduction for a group that is not a qualified 501(c)(3), or for a gift that partly benefits a private person.
• Missing administrative expenses that were actually paid during estate administration.
• Overlooking small state death tax payments that still qualify for a federal deduction.
• Failing to consider QTIP or portability elections that can protect more assets across both spouses’ estates.

Step‑By‑Step Eligibility Checklist

1. List all assets to determine the gross estate.
2. Confirm and total the following deductions:
   • Funeral expenses paid by the estate
   • Debts and claims owed at death
   • Administrative expenses during administration
   • Marital deduction (citizen spouse, or non‑citizen spouse via QDOT)
   • Charitable deduction for exclusively charitable gifts
   • State death tax deduction for taxes actually paid
   • Casualty/theft losses not covered by insurance and incurred during administration
3. Subtract deductions to reach the taxable estate.
4. Compare the result to the $12.92 million exemption and note any potential 40% tax on amounts above that level.
5. Consider elections (QTIP, portability) and trust planning (QDOT) to protect more assets.

With this approach, most families can quickly determine whether they qualify for the marital deduction, how a QDOT can help a non‑citizen spouse, and which other deductions are available to lower the taxable estate.