I don't think marital deduction is $5.25 million. The estate tax exemption is $5.25 million. Marital deduction is "the value of any interest in property which passes or has passed from the decedent to his surviving spouse," 26 USC 2056(a)
(1) 26 USC 2056, Marital deduction for Surviving US Citizen Spouse
Given a gross estate of the decedent spouse, marital deduction is deducted, result in a taxable estate, which is subject to estate tax. Assuming the estate of the dead is 10 mil, he can leave 7 mil to his US citizen wife tax-free, and leave the remaining 3 mil to his children. His taxable estate is 10-7=3, since 7 is marital deduction and not included in taxable estate, and not subject to estate tax.
(2) 26 USC 2102 etc, estate tax exemption
The taxable estate is subjected to estate tax exemption (26 USC 2102), which is set to $ 5.25 mil in 2013. In our example above, the estate is NOT subject to estate tax because taxable estate = 3 mil < 5.25 mil.
(3) 26 USC 2056 (d)(1), Marital deduction for Surviving non-US citizen spouse
On the other hand, if wife is non-US citizen, the decedent spouse cannot leave any money tax-free to his non-citizen wife per 2056(d)(1). His taxable estate = gross estate: 10 - 0 = 10 mil, assuming 40% estate tax rate, his estate tax is (10-5.25)*40% = 1.9 mil; the after-tax estate is 5.25 + (10-5.25)*60% = 8.1 mil, shared among his non-citizen wife and any children.
(4) For small estate:
However, the differences in estate tax disappears for any gross estate worth less than 5.25 mil. In either case, since both gross estate and the taxable estate would be less than 5.25 mil, estate tax would be zero, at least for 2013.
(5) Non-Resident Non-US Citizens, such as Saudi princes, Russian oiligarch, and Chinese officials who own property in US, but don't reside in US, their estate has onlyl $60,000 exemption instead of 5.25 mil, and their estate will be heavily taxed.
(1) 26 USC 2056, Marital deduction for Surviving US Citizen Spouse
Given a gross estate of the decedent spouse, marital deduction is deducted, result in a taxable estate, which is subject to estate tax. Assuming the estate of the dead is 10 mil, he can leave 7 mil to his US citizen wife tax-free, and leave the remaining 3 mil to his children. His taxable estate is 10-7=3, since 7 is marital deduction and not included in taxable estate, and not subject to estate tax.
(2) 26 USC 2102 etc, estate tax exemption
The taxable estate is subjected to estate tax exemption (26 USC 2102), which is set to $ 5.25 mil in 2013. In our example above, the estate is NOT subject to estate tax because taxable estate = 3 mil < 5.25 mil.
(3) 26 USC 2056 (d)(1), Marital deduction for Surviving non-US citizen spouse
On the other hand, if wife is non-US citizen, the decedent spouse cannot leave any money tax-free to his non-citizen wife per 2056(d)(1). His taxable estate = gross estate: 10 - 0 = 10 mil, assuming 40% estate tax rate, his estate tax is (10-5.25)*40% = 1.9 mil; the after-tax estate is 5.25 + (10-5.25)*60% = 8.1 mil, shared among his non-citizen wife and any children.
(4) For small estate:
However, the differences in estate tax disappears for any gross estate worth less than 5.25 mil. In either case, since both gross estate and the taxable estate would be less than 5.25 mil, estate tax would be zero, at least for 2013.
(5) Non-Resident Non-US Citizens, such as Saudi princes, Russian oiligarch, and Chinese officials who own property in US, but don't reside in US, their estate has onlyl $60,000 exemption instead of 5.25 mil, and their estate will be heavily taxed.
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