Estate Tax Return Error Costs Family $2 Million Deduction

What Happened

The U.S. Tax Court denied a $2 million marital deduction to the Estate of Martin Griffin in a 2025 ruling that highlights the critical importance of proper estate tax return preparation. Griffin died in 2016, leaving behind a revocable trust that directed $2.3 million to be distributed to an irrevocable trust for the benefit of his surviving spouse, Maria C. Creel.

The estate's executor made a costly mistake when preparing Form 706, the federal estate tax return. The executor listed the $2 million bequest in the wrong section of Schedule M, placing it in Box B (non-QTIP property) instead of Box A (QTIP property). This seemingly minor error prevented the estate from making the required QTIP election, which would have qualified the bequest for the unlimited marital deduction under IRC Section 2056.

The Tax Court rejected the executor's arguments about substantial compliance and harmless error, ruling that no valid QTIP election had been made. However, the court did allow a $300,000 marital deduction for a separate bequest that created a new trust solely for the surviving spouse's benefit, with any remaining assets passing to her estate upon death.

What It Means

This case demonstrates how technical compliance requirements can override the intent behind estate planning documents. The federal estate tax exemption currently stands at $15,000,00026 USC 2001(c), 2010; P.L. 119-21 §70106Verified Jan 2, 2026, but for estates that exceed this threshold, the marital deduction becomes crucial for tax planning. The unlimited marital deduction allows spouses to transfer any amount of assets to each other without triggering federal estate tax, effectively deferring the tax until the second spouse's death.

A QTIP (Qualified Terminable Interest Property) trust allows the first spouse to die to claim the marital deduction while maintaining control over how assets are distributed after the surviving spouse's death. This arrangement requires an affirmative election on Form 706 by listing the property in the correct section of Schedule M. The election cannot be made informally or through substantial compliance—it must follow the exact procedural requirements.

The Griffin case also illustrates the terminable interest rule, which generally denies the marital deduction for property that could escape estate tax in the surviving spouse's estate. Trust arrangements typically create terminable interests, but specific exceptions like QTIP trusts allow the marital deduction when proper elections are made. The $300,000 bequest succeeded because it created a non-terminable interest—the surviving spouse had complete control, and any remaining assets would pass to her estate.

Context from SimplyTrust

While SimplyTrust focuses on revocable living trusts rather than complex tax planning structures, understanding these federal requirements helps families recognize when professional tax counsel becomes necessary. Estates approaching the $15,000,00026 USC 2001(c), 2010; P.L. 119-21 §70106Verified Jan 2, 2026 federal threshold face intricate compliance requirements that extend beyond basic trust documents.

For most families, a properly funded revocable living trust avoids probate without triggering these complex tax elections. However, when estate values approach federal exemption levels or involve sophisticated tax planning strategies, the precision required for documents like Form 706 underscores the importance of specialized expertise in estate tax compliance.

Source: Improperly Prepared Estate Tax Return Costs Estate a Shot at the Marital Deduction - ESA Law