Start with why a trust normally fails. Section 2056(b)(1) disallows the marital deduction for a "terminable interest," meaning an interest that will terminate or fail on the lapse of time or the occurrence of an event, where two things are true: an interest in the same property passed from the decedent to someone other than the surviving spouse, and by reason of that passing that person may possess or enjoy the property after the spouse's interest ends. A life estate for the spouse with a remainder to the children is the textbook case. The policy behind it is straightforward: the deduction exists to defer tax until the property is taxed in the survivor's estate, and property that leaves for the children on the survivor's death would otherwise escape both.
Route one: the power-of-appointment trust, section 2056(b)(5). The heading Congress gave it is "Life estate with power of appointment in surviving spouse," and the conditions are strict. The spouse must be entitled for life to all the income from the entire interest, or from a specific portion of it, payable annually or more often. The spouse must hold a power to appoint the entire interest, or that portion, in favor of herself or her own estate. No other person may hold a power to appoint any part of it to anyone other than the spouse. And the statute closes with the requirement that catches most attempted drafting: the power must be "exercisable by such spouse alone and in all events," so a power that needs a trustee's consent, or that only arises in certain circumstances, does not qualify.
Route two: the QTIP trust, section 2056(b)(7). Congress added this in 1981 precisely because (b)(5) required handing the survivor control of the remainder, which many people making a second marriage did not want to do. A QTIP gives the spouse a qualifying income interest for life, and the executor makes an irrevocable election on the estate tax return. The first spouse to die keeps the remainder decision. The election, the inclusion of the property in the surviving spouse's estate under section 2044, and the consequences of giving the income interest away are the subject of their own entry.
Route three: a trust whose remainder is payable to the surviving spouse's own estate. This one is not a special provision at all; it works because section 2056(b)(1)(A) only disallows the deduction where an interest passes from the decedent "to any person other than such surviving spouse (or the estate of such spouse)." Direct the remainder to the survivor's estate and nobody else ever takes an interest from the first decedent, so the terminable-interest rule has nothing to bite on. Practitioners call this an estate trust. It is rare, because it forces the property through the survivor's probate estate and hands the remainder decision to the survivor's own will, but it can accumulate income rather than paying it all out, which neither of the other two routes permits.
One more thing the statute allows, which is not a route so much as a drafting comfort. Section 2056(b)(3) says a survivorship condition does not make an interest terminable, provided the condition runs no more than six months after the decedent's death or turns on a common disaster, and provided the spouse does in fact survive it. A will that leaves everything to a spouse "if she survives me by 60 days" therefore still qualifies.
What all three have in common, and it is the point of the whole exercise. Qualifying property is not removed from the transfer tax system, only deferred. Under (b)(5) the surviving spouse holds a general power of appointment, so the property is in her gross estate under section 2041. Under (b)(7) it is in her gross estate under section 2044. Under an estate trust it is in her estate because it is literally payable to it. Choosing a marital trust is a choice about control and timing, not a way to make the property disappear.
