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In construing this regulation, courts have explained that
“the ‘test’ of whether assets pass from the decedent for estate
tax purposes is ‘whether the interest reaches the spouse pursuant
to state law, correctly interpreted--not whether it reached the
spouse as a result of good faith, adversary confrontation.’”
Estate of Carpenter v. Commissioner, 52 F.3d 1266, 1273 (4th Cir.
1995) (quoting Ahmanson Found. v. United States, 674 F.2d 761,
774 (9th Cir. 1981)), affg. T.C. Memo. 1994-108. A settlement
must be based on valid, enforceable rights under the will and
State law at the time the settlement was reached in order for
property received thereunder to qualify for the marital
deduction. Id.; see also Estate of Hubert v. Commissioner, 101
T.C. 314, 319 (1993), affd. 63 F.3d 1083 (11th Cir. 1995), affd.
520 U.S. 93 (1997). The principle just enunciated is a corollary
to the general rule that “Qualification for the marital deduction
must be determined as of the time of * * * death.” First Natl.
Exch. Bank v. United States, 335 F.2d 91, 92 (4th Cir. 1964).
Accordingly, in situations such as that now before the Court,
“the proper focus is on the rights a widow received under the
terms of the testamentary * * * [instrument], not on any
subsequent rights she may have received from the settlement
agreement itself.” Estate of Carpenter v. Commissioner, supra at
1273.
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