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Estate Planning
SUNY Buffalo Law School
Schultz, Tammie D.

QUESTION 1: INCLUSIONS IN THE GROSS ESTATE                                                                                       
®      IRC § 2031: Definition of the Gross Estate: the value of the gross estate of the decedent shall be determined by including to the extent provided for in this part, the value at the time of his death of all property, and IRC § 2033 property in which decedent had an interest:
®      Note: Was the property held at death?
§ Decedent held the interest immediately before death AND the interest “survives” decedent in the sense that decedent has the right to transfer the interest at death to the objects of his bounty
Any interest in property D held at time of death
Ex: Life insurance owned by D on another’s life
Any interest of D’s Surviving Spouse in D’s Property (Dower/Curtesy)
Transfers with retained income interests, reciprocal trusts, retained powers to posses or enjoy, retained power to designate who shall posses or enjoy
Lifetime gratuitous transfers for “re-inclusion”; Generally interests in property transferred under such circumstances as to bring the interest within D’s gross estate at death due to a “Retained string/interest” characterized as “proximate to death”
Transfers with Retained Reversionary Interests
Transfers with Retained Powers to Alter, Amend, Revoke, or Terminate
Transfers made within 3 years of death
Transfers for Insufficient Consideration
Joint Interests
General POA
Life insurance owned by D and payable to D’s estate
IRC §§ 2035- 2038: Recapture the value for inclusion in the gross estate
®      Congress deemed these to occur when, [1] donee must survive the decedent in order to receive the property, or [2] decedent has some continuing relationship to the property in the form of a power over interest that affects or may affect enjoyment of the property until decedent’s death
®      Decedent transfers the property for less than full and adequate consideration in money or money’s worth
§ If receives partial consideration, § 2043 excludes only the value of the consideration received
·         Ex: Decedent transfers property worth $100 in consideration of $40 and the property is worth $200 at dod, include $160.
®      [1]   2036(a)(1) Transfers with Retained Interests
§ For 2036(a)(1) and (2) to trigger inclusion, three conditions must be satisfied
·         1. Decedent must have transferred property
·         2. While retaining a prescribed interest
o    Right to income; right to possession; right to enjoyment of the transferred property
o    Right to designate who shall receive possession of the transferred property or the right to designate who shall receive enjoyment of the transferred property
·         3. For a prescribed period
o    Life or any period not ascertainable without reference to decedents death or for any period that does not end before the decedent’s death
§ Reciprocal Trusts: See EC #1- as in cases of unequal value, limit the inclusion to the value of the smaller transfer
§ Transfers with Retained Possession or Enjoyment
·         Ex: Max gives daughter painting, but it hangs on his wall until his death
o    2036(a)(1) requires inclusion because Max made a transfer of property and retained possession or enjoyment of the property for a period which ended at his death- include dod value in estate
®      § 2036(a)(2) Retention of Power to Designate Who Shall Possess or Enjoy Property
§ Usually have an individual who makes an irrevocable transfer of property during lifetime, but retains a string of control: usually letting him control the ultimate disposition of property
·         Ex: Discretionary Power over Income and Principal- grantor is trustee as well, and even if he shares legal title with another trustee, will be triggered under 2036(a)(2)
§ Note: power to direct investments is not the type of power governed here
§ Non-inclusion for ascertainable standards: enforceable under state law, which limits grantor’s discretion so that he has no power to designate possession or enjoyment
®      § 2038: Transfers with Retained Powers to Alter, Amend, Revoke, or Terminate
§ [a] Power to revoke: Abe creates trust that pays income to B for B’s life. At B’s death, trust terminates and remainder to C. A has power to revoke with consent of B. Although B is “adverse” to A, value of trust is still included in estate
§ [b] Power to alter or amend: D transfers property to irrevocable trust that requires income to be paid to A for D’s life. Upon D’s death, remainder to B. Trust gives D power to name a new remainder beneficiary. This is sufficient to include the entire value of the trust property because the income interest expired at D’s death and was subject to D’s power of alteration.
§ Beneficial vs. Non-Beneficial distinction: (ability to revoke and enjoy interest for self) and non-beneficial (ability to revoke and designate anyone other than self) distinctions
®      § 2037: Transfers with Retained Reversionary Interests
§ Applies to reversions retained by the decedent from a lifetime transfer of property; inclusion results when both (a)(1) Survivorship test and (a)(2) Reversion test are met
·         (a)(1) Survivorship test: beneficiary’s enjoyment of property at issue must be obtainable only by surviving the decedent. If beneficiary can take by other means, such as the exercise of a GPOA, survivorship test is not met
·         (a)(2) Reversion test: decedent retained a reversionary interest in the subject property and the value of the reversion immediately before the decedent’s death exceeded 5% of the value of the subject property;
§ If this applies, the amount includible is the value of ALL property subject to reversionary interest
®      Adequate and Full Consideration Exception for §§ 2036-2038
§ Do not apply to a transfer which is a “bona fide sale for an adequate and full consideration in money or moneys worth”
·         Max sells remainder interest for $30 when FMV is $100; what is included in Max’s gross estate if at the time of his death the FMV is $300?
o    § 2043 tells us that where the decedent receives less that full and adequate consideration, decedent’s gross estate will include the excess of the transferred property’s fair market value at death over the value of the consideration received
§ $300- $30 = $270
®      § 2035: Transfers made within three years of death
§ (a)(1) a decedent’s gift of a life insurance policy on the decedent’s life made within 3 years of death if the vlue of the policy would have been included in the decedent’s gross estate under 2042
§ (a)(2) gift of an interest in property that would have caused inclusion under 2036-2038 if the decedent had held onto the interest until death
·         This part of the statute forestalls attempts made shortly before death (deathbed transactions) that remove interests from the transferors gross estate, including post transfer appreciation, which, if decedent had retained the interest/incidents of ownership, would be interests includ

ses from decedent to his “surviving spouse”
·         [passing includes all of the methods by which property may be transmitted at death as well as any transfer “by the decedent at any time” and includes interest passing to surviving spouse via her elective share, dower or intestacy, and can include property that “passes” to surviving spouse on the valid disclaimer of a person other than the SS on the concept that the SS take from decedent and not disclaimant
·         Spouse- must be married!!!
§ But only to the extent that such interest is included in determining the gross estate
·         Limit the deduction to the amount of the inclusion!
o    The value of the property interest can enter into the computation of the marital deduction only to the extent that such interest is included in determining the value of the gross estate
®      Think: 2056(a) permits the deduction UNLESS the interest passing to the surviving spouse is a disqualified nondeductible terminable interest
®      However, even if the transfer is an otherwise nondeductible terminable interest, the deduction will be allowed if it can be brought within 2056(b) Exceptions to the Terminable Interest Rule
®      What IS a Terminable Interest?
§ An interest that will terminate or fail
·         On the lapse of time (ex: surviving spouse’s death, as in the nature of a LE)
·         On the occurrence of an event or contingency, or on the failure of an event or contingency to occur (ex: if SS remarries, or unless she graduates from law school)
·         AND only if upon termination of the surviving spouse’s interest in the same property, the property passes for less than full and adequate consideration from decedent to a third party other than SS AND the third party may posses/enjoy any part of the property
o    Pay attention to this: what about “To wife, income for life, remainder at death to HER estate”- looks like a TI, however, although her interest ends at her death, at that moment, the remainder goes to her estate- possession and enjoyment does not pass to a person other than the surviving spouse
§ Estate trust is NOT terminable interest an is within 2056(a) general rule deductibility
®      If 2056(b) applies, think: is there an “Exception to the exception” to requalify the otherwise terminable interest property for the deduction?
§ If YES: it meets the distinct detailed form of requirements of 2056(b)(3)-(8), an interest falling into the terminable interest rule will still be eligible for the marital deduction
§ Requires precise adherence to statutory requirements in order to qualify for the deduction
§ No marital deduction will be allowed where an interest in the property bequeathed to surviving spouse could pass to another person from Decedent spouse upon the termination of SS’s interest without a first inclusion of such interest in surviving spouse’s transfer tax base
®      The 5 exceptions to the Terminable Interest Rule