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Electronic Code of Federal Regulations

e-CFR Data is current as of September 18, 2014

Title 26Chapter ISubchapter B → Part 20


Title 26: Internal Revenue


PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954


Contents

Introduction

§20.0-1   Introduction.
§20.0-2   General description of tax.

Estates of Citizens or Residents

Tax Imposed

§20.2001-1   Valuation of adjusted taxable gifts and section 2701(d) taxable events.
§20.2001-2T   Valuation of adjusted taxable gifts for purposes of determining the deceased spousal unused exclusion amount of last deceased spouse (temporary).
§20.2002-1   Liability for payment of tax.
§20.2010-0T   Table of contents (temporary).
§20.2010-1T   Unified credit against estate tax; in general (temporary).
§20.2010-2T   Portability provisions applicable to estate of a decedent survived by a spouse (temporary).
§20.2010-3T   Portability provisions applicable to the surviving spouse's estate (temporary).

Credits Against Tax

§20.2011-1   Credit for State death taxes.
§20.2011-2   Limitation on credit if a deduction for State death taxes is allowed under section 2053(d).
§20.2012-1   Credit for gift tax.
§20.2013-1   Credit for tax on prior transfers.
§20.2013-2   “First limitation”.
§20.2013-3   “Second limitation”.
§20.2013-4   Valuation of property transferred.
§20.2013-5   “Property” and “transfer” defined.
§20.2013-6   Examples.
§20.2014-1   Credit for foreign death taxes.
§20.2014-2   “First limitation”.
§20.2014-3   “Second limitation”.
§20.2014-4   Application of credit in cases involving a death tax convention.
§20.2014-5   Proof of credit.
§20.2014-6   Period of limitations on credit.
§20.2014-7   Limitation on credit if a deduction for foreign death taxes is allowed under section 2053(d).
§20.2015-1   Credit for death taxes on remainders.
§20.2016-1   Recovery of death taxes claimed as credit.

Gross Estate

§20.2031-0   Table of contents.
§20.2031-1   Definition of gross estate; valuation of property.
§20.2031-2   Valuation of stocks and bonds.
§20.2031-3   Valuation of interests in businesses.
§20.2031-4   Valuation of notes.
§20.2031-5   Valuation of cash on hand or on deposit.
§20.2031-6   Valuation of household and personal effects.
§20.2031-7   Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.
§20.2031-8   Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.
§20.2031-9   Valuation of other property.
§20.2032-1   Alternate valuation.
§20.2032-1T   Alternate valuation (temporary).
§20.2032A-3   Material participation requirements for valuation of certain farm and closely-held business real property.
§20.2032A-4   Method of valuing farm real property.
§20.2032A-8   Election and agreement to have certain property valued under section 2032A for estate tax purposes.
§20.2033-1   Property in which the decedent had an interest.
§20.2034-1   Dower or curtesy interests.
§20.2036-1   Transfers with retained life estate.
§20.2037-1   Transfers taking effect at death.
§20.2038-1   Revocable transfers.
§20.2039-1   Annuities.
§20.2039-1T   Limitations and repeal of estate tax exclusion for qualified plans and individual retirement plans (IRAs) (temporary).
§20.2039-2   Annuities under “qualified plans” and section 403(b) annuity contracts.
§20.2039-3   Lump sum distributions under “qualified plans;” decedents dying after December 31, 1976, and before January 1, 1979.
§20.2039-4   Lump sum distributions from “qualified plans;” decedents dying after December 31, 1978.
§20.2039-5   Annuities under individual retirement plans.
§20.2040-1   Joint interests.
§20.2041-1   Powers of appointment; in general.
§20.2041-2   Powers of appointment created on or before October 21, 1942.
§20.2041-3   Powers of appointment created after October 21, 1942.
§20.2042-1   Proceeds of life insurance.
§20.2043-1   Transfers for insufficient consideration.
§20.2044-1   Certain property for which marital deduction was previously allowed.
§20.2044-2   Effective dates.
§20.2045-1   Applicability to pre-existing transfers or interests.
§20.2046-1   Disclaimed property.

Actuarial Tables Applicable Before May 1, 2009

§20.2031-7A   Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before May 1, 2009.

Taxable Estate

§20.2051-1   Definition of taxable estate.
§20.2052-1   Exemption.
§20.2053-1   Deductions for expenses, indebtedness, and taxes; in general.
§20.2053-2   Deduction for funeral expenses.
§20.2053-3   Deduction for expenses of administering estate.
§20.2053-4   Deduction for claims against the estate.
§20.2053-5   Deductions for charitable, etc., pledges or subscriptions.
§20.2053-6   Deduction for taxes.
§20.2053-7   Deduction for unpaid mortgages.
§20.2053-8   Deduction for expenses in administering property not subject to claims.
§20.2053-9   Deduction for certain State death taxes.
§20.2053-10   Deduction for certain foreign death taxes.
§20.2054-1   Deduction for losses from casualties or theft.
§20.2055-1   Deduction for transfers for public, charitable, and religious uses; in general.
§20.2055-2   Transfers not exclusively for charitable purposes.
§20.2055-3   Effect of death taxes and administration expenses.
§20.2055-4   Disallowance of charitable, etc., deductions because of “prohibited transactions” in the case of decedents dying before January 1, 1970.
§20.2055-5   Disallowance of charitable, etc., deductions in the case of decedents dying after December 31, 1969.
§20.2055-6   Disallowance of double deduction in the case of qualified terminable interest property.
§20.2056-0   Table of contents.
§20.2056(a)-1   Marital deduction; in general.
§20.2056(a)-2   Marital deduction; “deductible interests” and “nondeductible interests”.
§20.2056(b)-1   Marital deduction; limitation in case of life estate or other “terminable interest”.
§20.2056(b)-2   Marital deduction; interest in unidentified assets.
§20.2056(b)-3   Marital deduction; interest of spouse conditioned on survival for limited period.
§20.2056(b)-4   Marital deduction; valuation of interest passing to surviving spouse.
§20.2056(b)-5   Marital deduction; life estate with power of appointment in surviving spouse.
§20.2056(b)-6   Marital deduction; life insurance or annuity payments with power of appointment in surviving spouse.
§20.2056(b)-7   Election with respect to life estate for surviving spouse.
§20.2056(b)-8   Special rule for charitable remainder trusts.
§20.2056(b)-9   Denial of double deduction.
§20.2056(b)-10   Effective dates.
§20.2056(c)-1   Marital deduction; definition of “passed from the decedent.”
§20.2056(c)-2   Marital deduction; definition of “passed from the decedent to his surviving spouse.”
§20.2056(c)-3   Marital deduction; definition of “passed from the decedent to a person other than his surviving spouse”.
§20.2056(d)-1   Marital deduction; special rules for marital deduction if surviving spouse is not a United States citizen.
§20.2056(d)-2   Marital deduction; effect of disclaimers of post-December 31, 1976 transfers.
§20.2056(d)-3   Marital deduction; effect of disclaimers of pre-January 1, 1977 transfers.
§20.2056A-0   Table of contents.
§20.2056A-1   Restrictions on allowance of marital deduction if surviving spouse is not a United States citizen.
§20.2056A-2   Requirements for qualified domestic trust.
§20.2056A-3   QDOT election.
§20.2056A-4   Procedures for conforming marital trusts and nontrust marital transfers to the requirements of a qualified domestic trust.
§20.2056A-5   Imposition of section 2056A estate tax.
§20.2056A-6   Amount of tax.
§20.2056A-7   Allowance of prior transfer credit under section 2013.
§20.2056A-8   Special rules for joint property.
§20.2056A-9   Designated Filer.
§20.2056A-10   Surviving spouse becomes citizen after QDOT established.
§20.2056A-11   Filing requirements and payment of the section 2056A estate tax.
§20.2056A-12   Increased basis for section 2056A estate tax paid with respect to distribution from a QDOT.
§20.2056A-13   Effective dates.

Estates of Nonresidents Not Citizens

§20.2101-1   Estates of nonresidents not citizens; tax imposed.
§20.2102-1   Estates of nonresidents not citizens; credits against tax.
§20.2103-1   Estates of nonresidents not citizens; “entire gross estate”.
§20.2104-1   Estates of nonresidents not citizens; property within the United States.
§20.2105-1   Estates of nonresidents not citizens; property without the United States.
§20.2106-1   Estates of nonresidents not citizens; taxable estate; deductions in general.
§20.2106-2   Estates of nonresidents not citizens; deductions for expenses, losses, etc.
§20.2107-1   Expatriation to avoid tax.

Miscellaneous

§20.2201-1   Members of the Armed Forces dying during an induction period.
§20.2202-1   Missionaries in foreign service.
§20.2203-1   Definition of executor.
§20.2204-1   Discharge of executor from personal liability.
§20.2204-2   Discharge of fiduciary other than executor from personal liability.
§20.2204-3   Special rules for estates of decedents dying after December 31, 1976; special lien under section 6324A.
§20.2205-1   Reimbursement out of estate.
§20.2206-1   Liability of life insurance beneficiaries.
§20.2207-1   Liability of recipient of property over which decedent had power of appointment.
§20.2207A-1   Right of recovery of estate taxes in the case of certain marital deduction property.
§20.2207A-2   Effective date.
§20.2208-1   Certain residents of possessions considered citizens of the United States.
§20.2209-1   Certain residents of possessions considered nonresidents not citizens of the United States.

Procedure and Administration

§20.6001-1   Persons required to keep records and render statements.
§20.6011-1   General requirement of return, statement, or list.
§20.6011-4   Requirement of statement disclosing participation in certain transactions by taxpayers.
§20.6018-1   Returns.
§20.6018-2   Returns; person required to file return.
§20.6018-3   Returns; contents of returns.
§20.6018-4   Returns; documents to accompany the return.
§20.6036-1   Notice of qualification as executor of estate of decedent dying before 1971.
§20.6036-2   Notice of qualification as executor of estate of decedent dying after 1970.
§20.6060-1   Reporting requirements for tax return preparers.
§20.6061-1   Signing of returns and other documents.
§20.6065-1   Verification of returns.
§20.6071-1   Time for filing preliminary notice required by §20.6036-1.
§20.6075-1   Returns; time for filing estate tax return.
§20.6081-1   Extension of time for filing the return.
§20.6091-1   Place for filing returns or other documents.
§20.6091-2   Exceptional cases.
§20.6107-1   Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.
§20.6109-1   Tax return preparers furnishing identifying numbers for returns or claims for refund.
§20.6151-1   Time and place for paying tax shown on the return.
§20.6161-1   Extension of time for paying tax shown on the return.
§20.6161-2   Extension of time for paying deficiency in tax.
§20.6163-1   Extension of time for payment of estate tax on value of reversionary or remainder interest in property.
§20.6165-1   Bonds where time to pay tax or deficiency has been extended.
§20.6166-1   Election of alternate extension of time for payment of estate tax where estate consists largely of interest in closely held business.
§20.6166A-1   Extension of time for payment of estate tax where estate consists largely of interest in closely held business.
§20.6166A-2   Definition of an interest in a closely held business.
§20.6166A-3   Acceleration of payment.
§20.6166A-4   Special rules applicable where due date of return was before September 3, 1958.
§20.6302-1   Voluntary payments of estate taxes by electronic funds transfer.
§20.6314-1   Duplicate receipts for payment of estate taxes.
§20.6321   Statutory provisions; lien for taxes.
§20.6321-1   Lien for taxes.
§20.6323-1   Validity and priority against certain persons.
§20.6324-1   Special lien for estate tax.
§20.6324A-1   Special lien for estate tax deferred under section 6166 or 6166A.
§20.6324B-1   Special lien for additional estate tax attributable to farm, etc., valuation.
§20.6325-1   Release of lien or partial discharge of property; transfer certificates in nonresident estates.
§20.6601-1   Interest on underpayment, nonpayment, or extensions of time for payment, of tax.
§20.6694-1   Section 6694 penalties applicable to tax return preparer.
§20.6694-2   Penalties for understatement due to an unreasonable position.
§20.6694-3   Penalty for understatement due to willful, reckless, or intentional conduct.
§20.6694-4   Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
§20.6695-1   Other assessable penalties with respect to the preparation of tax returns for other persons.
§20.6696-1   Claims for credit or refund by tax return preparers or appraisers.
§20.6905-1   Discharge of executor from personal liability for decedent's income and gift taxes.
§20.7101-1   Form of bonds.

General Actuarial Valuations

§20.7520-1   Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
§20.7520-2   Valuation of charitable interests.
§20.7520-3   Limitation on the application of section 7520.
§20.7520-4   Transitional rules.
§20.7701-1   Tax return preparer.

Authority: 26 U.S.C. 7805.

Section 20.2010-0T also issued under 26 U.S.C. 2010(c)(6).

Section 20.2010-1T also issued under 26 U.S.C. 2010(c)(6).

Section 20.2010-2T also issued under 26 U.S.C. 2010(c)(6).

Section 20.2010-3T also issued under 26 U.S.C. 2010(c)(6).

Section 20.2031-7 also issued under 26 U.S.C. 7520(c)(2).

Section 20.2031-7A also issued under 26 U.S.C. 7520(c)(2).

Section 20.6060-1 also issued under 26 U.S.C. 6060(a).

Section 20.6081-1 also issued under 26 U.S.C. 6081(a).

Section 20.6109-1 also issued under 26 U.S.C. 6109(a).

Section 20.6109-2 also issued under 26 U.S.C. 6109(a).

Section 20.6302-1 also issued under 26 U.S.C. 6302(a) and (h).

Section 20.6695-1 also issued under 26 U.S.C. 6695(b).

Section 20.7520-1 also issued under 26 U.S.C. 7520(c)(2).

Section 20.7520-2 also issued under 26 U.S.C. 7520(c)(2).

Section 20.7520-3 also issued under 26 U.S.C. 7520(c)(2).

Section 20.7520-4 also issued under 26 U.S.C. 7520(c)(2).

Source: T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, unless otherwise noted.

Introduction

§20.0-1   Introduction.

(a) In general. (1) The regulations in this part (part 20, subchapter B, chapter I, title 26, Code of Federal Regulations) are designated “Estate Tax Regulations.” These regulations pertain to (i) the Federal estate tax imposed by chapter 11 of subtitle B of the Internal Revenue Code on the transfer of estates of decedents dying after August 16, 1954, and (ii) certain related administrative provisions of subtitle F of the Code. It should be noted that the application of many of the provisions of these regulations may be affected by the provisions of an applicable death tax convention with a foreign country. Unless otherwise indicated, references in the regulations to the “Internal Revenue Code” or the “Code” are references to the Internal Revenue Code of 1954, as amended, and references to a section or other provision of law are references to a section or other provision of the Internal Revenue Code of 1954, as amended. Unless otherwise provided, the Estate Tax Regulations are applicable to the estates of decedents dying after August 16, 1954, and supersede the regulations contained in part 81, subchapter B, chapter I, title 26, Code of Federal Regulations (1939) (Regulations 105, Estate Tax), as prescribed and made applicable to the Internal Revenue Code of 1954 by Treasury Decision 6091, signed August 16, 1954 (19 FR 5167, Aug. 17, 1954). The regulations in this part do not reflect the amendments made by the Foreign Investors Tax Act of 1966 (80 Stat. 1539).

(2) Section 2208 makes the provisions of chapter 11 of the Code apply to the transfer of the estates of certain decedents dying after September 2, 1958, who were citizens of the United States and residents of a possession thereof at the time of death. Section 2209 makes the provisions of chapter 11 apply to the transfer of the estates of certain other decedents dying after September 14, 1960, who were citizens of the United States and residents of a possession thereof at the time of death. See §§20.2208-1 and 20.2209-1. Except as otherwise provided in §§20.2208-1 and 20.2209-1, the provisions of these regulations do not apply to the estates of such decedents.

(b) Scope of regulations—(1) Estates of citizens or residents. Subchapter A of Chapter 11 of the Code pertains to the taxation of the estate of a person who was a citizen or a resident of the United States at the time of his death. A “resident” decedent is a decedent who, at the time of his death, had his domicile in the United States. The term “United States”, as used in the estate tax regulations, includes only the States and the District of Columbia. The term also includes the Territories of Alaska and Hawaii prior to their admission as States. See section 7701(a)(9). A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. For the meaning of the term “citizen of the United States” as applied in a case where the decedent was a resident of a possession of the United States, see §20.2208-1. The regulations pursuant to subchapter A are set forth in §§20.2001-1 to 20.2056(d)-1.

(2) Estates of nonresidents not citizens. Subchapter B of Chapter 11 of the Code pertains to the taxation of the estate of a person who was a nonresident not a citizen of the United States at the time of his death. A “nonresident” decedent is a decedent who, at the time of his death, had his domicile outside the United States under the principles set forth in subparagraph (1) of this paragraph. (See, however, section 2202 with respect to missionaries in foreign service.) The regulations pursuant to subchapter B are set forth in §§20.2101-1 to 20.2107-1.

(3) Miscellaneous substantive provisions. Subchapter C of Chapter 11 of the Code contains a number of miscellaneous substantive provisions. The regulations pursuant to subchapter C are set forth in §§20.2201-1 to 20.2209-1.

(4) Procedure and administration provisions. Subtitle F of the Internal Revenue Code contains some sections which are applicable to the Federal estate tax. The regulations pursuant to those sections are set forth in §§20.6001-1 to 20.7101-1. Such regulations do not purport to be all the regulations on procedure and administration which are pertinent to estate tax matters. For the remainder of the regulations on procedure and administration which are pertinent to estate tax matters, see part 301 (Regulations on Procedure and Administration) of this chapter.

(c) Arrangement and numbering. Each section of the regulations in this part (other than this section and §20.0-2) is designated by a number composed of the part number followed by a decimal point (20.); the section of the Internal Revenue Code which it interprets; a hyphen (-); and a number identifying the section. By use of these designations one can ascertain the sections of the regulations relating to a provision of the Code. For example, the regulations pertaining to section 2012 of the Code are designated §20.2012-1.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6526, 26 FR 414, Jan. 19, 1961; T.D. 7238, 37 FR 28717, Dec. 29, 1972; T.D. 7296, 38 FR 34191, Dec. 12, 1973; T.D. 7665, 45 FR 6089, Jan. 25, 1980; T.D. 8522, 59 FR 9646, Mar. 1, 1994]

§20.0-2   General description of tax.

(a) Nature of tax. The Federal estate tax is neither a property tax nor an inheritance tax. It is a tax imposed upon the transfer of the entire taxable estate and not upon any particular legacy, devise, or distributive share. Escheat of a decedent's property to the State for lack of heirs is a transfer which causes the property to be included in the decedent's gross estate.

(b) Method of determining tax; estate of citizen or resident—(1) In general. Subparagraphs (2) to (5) of this paragraph contain a general description of the method to be used in determining the Federal estate tax imposed upon the transfer of the estate of a decedent who was a citizen or resident of the United States at the time of his death.

(2) Gross estate. The first step in determining the tax is to ascertain the total value of the decedent's gross estate. The value of the gross estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death. (For certain exceptions in the case of real property situated outside the United States, see paragraphs (a) and (c) of §20.2031-1.) In addition, the gross estate may include property in which the decedent did not have an interest at the time of his death. A decedent's gross estate for Federal estate tax purposes may therefore be very different from the same decedent's estate for local probate purposes. Examples of items which may be included in a decedent's gross estate and not in his probate estate are the following: certain property transferred by the decedent during his lifetime without adequate consideration; property held jointly by the decedent and others; property over which the decedent had a general power of appointment; proceeds of certain policies of insurance on the decedent's life; annuities; and dower or curtesy of a surviving spouse or a statutory estate in lieu thereof. For a detailed explanation of the method of ascertaining the value of the gross estate, see sections 2031 through 2044, and the regulations thereunder.

(3) Taxable estate. The second step in determining the tax is to ascertain the value of the decedent's taxable estate. The value of the taxable estate is determined by subtracting from the value of the gross estate the authorized exemption and deductions. Under various conditions and limitations, deductions are allowable for expenses, indebtedness, taxes, losses, charitable transfers, and transfers to a surviving spouse. For a detailed explanation of the method of ascertaining the value of the taxable estate, see sections 2051 through 2056, and the regulations thereunder.

(4) Gross estate tax. The third step is the determination of the gross estate tax. This is accomplished by the application of certain rates to the value of the decedent's taxable estate. In this connection, see section 2001 and the regulations thereunder.

(5) Net estate tax payable. The final step is the determination of the net estate tax payable. This is done by subtracting from the gross estate tax the authorized credits against tax. Under certain conditions and limitations, credits are allowable for the following (computed in the order stated below):

(i) State death taxes paid in connection with the decedent's estate (section 2011);

(ii) Gift taxes paid on inter-vivos transfers by the decedent of property included in his gross estate (section 2012);

(iii) Foreign death taxes paid in connection with the decedent's estate (section 2014); and

(iv) Federal estate taxes paid on transfers of property to the decedent (section 2013).

Sections 25.2701-5 and 25.2702-6 of this chapter contain rules that provide additional adjustments to mitigate double taxation in cases where the amount of the decedent's gift was previously determined under the special valuation provisions of sections 2701 and 2702. For a detailed explanation of the credits against tax, see sections 201l through 2016 and the regulations thereunder.

(c) Method of determining tax; estate of nonresident not a citizen. In general, the method to be used in determining the Federal estate tax imposed upon the transfer of an estate of a decedent who was a nonresident not a citizen of the United States is similar to that described in paragraph (b) of this section with respect to the estate of a citizen or resident. Briefly stated, the steps are as follows: First, ascertain the sum of the value of that part of the decedent's “entire gross estate” which at the time of his death was situated in the United States (see §§20.2103-1 and 20.2014-1) and, in the case of an estate of an expatriate to which section 2107 applies, any amounts includible in his gross estate under section 2107(b) (see paragraph (b) of §20.2107-1); second, determine the value of the taxable estate by subtracting from the amount determined under the first step the amount of the allowable deductions (see §20.2106-1); third, compute the gross estate tax on the taxable estate (see §20.2106-1); and fourth, subtract from the gross estate tax the total amount of any allowable credits in order to arrive at the net estate tax payable (see §20.2102-1 and paragraph (c) of §20.2107-1).

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6684, 28 FR 11408, Oct. 24, 1963; T.D. 7296, 38 FR 34191, Dec. 12, 1973; T.D. 8395, 57 FR 4254, Feb. 4, 1992]

Estates of Citizens or Residents

Tax Imposed

§20.2001-1   Valuation of adjusted taxable gifts and section 2701(d) taxable events.

(a) Adjusted taxable gifts made prior to August 6, 1997. For purposes of determining the value of adjusted taxable gifts as defined in section 2001(b), if the gift was made prior to August 6, 1997, the value of the gift may be adjusted at any time, even if the time within which a gift tax may be assessed has expired under section 6501. This paragraph (a) also applies to adjustments involving issues other than valuation for gifts made prior to August 6, 1997.

(b) Adjusted taxable gifts and section 2701(d) taxable events occurring after August 5, 1997. For purposes of determining the amount of adjusted taxable gifts as defined in section 2001(b), if, under section 6501, the time has expired within which a gift tax may be assessed under chapter 12 of the Internal Revenue Code (or under corresponding provisions of prior laws) with respect to a gift made after August 5, 1997, or with respect to an increase in taxable gifts required under section 2701(d) and §25.2701-4 of this chapter, then the amount of the taxable gift will be the amount as finally determined for gift tax purposes under chapter 12 of the Internal Revenue Code and the amount of the taxable gift may not thereafter be adjusted. The rule of this paragraph (b) applies to adjustments involving all issues relating to the gift, including valuation issues and legal issues involving the interpretation of the gift tax law.

(c) Finally determined. For purposes of paragraph (b) of this section, the amount of a taxable gift as finally determined for gift tax purposes is—

(1) The amount of the taxable gift as shown on a gift tax return, or on a statement attached to the return, if the Internal Revenue Service does not contest such amount before the time has expired under section 6501 within which gift taxes may be assessed;

(2) The amount as specified by the Internal Revenue Service before the time has expired under section 6501 within which gift taxes may be assessed on the gift, if such specified amount is not timely contested by the taxpayer;

(3) The amount as finally determined by a court of competent jurisdiction; or

(4) The amount as determined pursuant to a settlement agreement entered into between the taxpayer and the Internal Revenue Service.

(d) Definitions. For purposes of paragraph (b) of this section, the amount is finally determined by a court of competent jurisdiction when the court enters a final decision, judgment, decree or other order with respect to the amount of the taxable gift that is not subject to appeal. See, for example, section 7481 regarding the finality of a decision by the U.S. Tax Court. Also, for purposes of paragraph (b) of this section, a settlement agreement means any agreement entered into by the Internal Revenue Service and the taxpayer that is binding on both. The term includes a closing agreement under section 7121, a compromise under section 7122, and an agreement entered into in settlement of litigation involving the amount of the taxable gift.

(e) Expiration of period of assessment. For purposes of determining if the time has expired within which a tax may be assessed under chapter 12 of the Internal Revenue Code, see §301.6501(c)-1(e) and (f) of this chapter.

(f) Effective dates. Paragraph (a) of this section applies to transfers of property by gift made prior to August 6, 1997, if the estate tax return for the donor/decedent's estate is filed after December 3, 1999. Paragraphs (b) through (e) of this section apply to transfers of property by gift made after August 5, 1997, if the gift tax return for the calendar period in which the gift is made is filed after December 3, 1999.

[T.D. 8845, 64 FR 67769, Dec. 3, 1999]

§20.2001-2T   Valuation of adjusted taxable gifts for purposes of determining the deceased spousal unused exclusion amount of last deceased spouse (temporary).

(a) General rule. Notwithstanding §20.2001-1(b), see §§20.2010-2T(d) and 20.2010-3T(d) for additional rules regarding the authority of the Internal Revenue Service to examine any gift or other tax return(s), even if the time within which a tax may be assessed under section 6501 has expired, for the purpose of determining the deceased spousal unused exclusion (DSUE) amount available under section 2010(c) of the Internal Revenue Code (Code).

(b) Effective/applicability date. Paragraph (a) of this section applies to the estates of decedents dying in calendar year 2011 or a subsequent year in which the applicable exclusion amount is determined under section 2010(c) of the Code by adding the basic exclusion amount and, in the case of a surviving spouse, the DSUE amount.

[T.D. 9593, 77 FR 36156, June 18, 2012]

§20.2002-1   Liability for payment of tax.

The Federal estate tax imposed both with respect to the estates of citizens or residents and with respect to estates of nonresidents not citizens is payable by the executor or administrator of the decedent's estate. This duty applies to the entire tax, regardless of the fact that the gross estate consists in part of property which does not come within the possession of the executor or administrator. If there is no executor or administrator appointed, qualified and acting in the United States, any person in actual or constructive possession of any property of the decedent is required to pay the entire tax to the extent of the value of the property in his possession. See section 2203, defining the term “executor”. The personal liability of the executor or such other person is described in section 3467 of the Revised Statutes (31 U.S.C. 192) as follows:

Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.

As used in said section, the word “debt” includes a beneficiary's distributive share of an estate. Thus, if the executor pays a debt due by the decedent's estate or distributes any portion of the estate before all the estate tax is paid, he is personally liable, to the extent of the payment or distribution, for so much of the estate tax as remains due and unpaid. In addition, section 6324(a)(2) provides that if the estate tax is not paid when due, then the spouse, transferee, trustee (except the trustee of an employee's trust which meets the requirements of section 401(a)), surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, who receives, or has on the date of the decedent's death, property included in the gross estate under section 2034 through 2042, is personally liable for the tax to the extent of the value, at the time of the decedent's death, of such property. See also the following related sections of the Internal Revenue Code: Section 2204, discharge of executor from personal liability; section 2205, reimbursement out of estate; sections 2206 and 2207, liability of life insurance beneficiaries and recipients of property over which decedent had power of appointment; sections 6321 through 6325, concerning liens for taxes; and section 6901(a)(1), concerning the liabilities of transferees and fiduciaries.

§20.2010-0T   Table of contents (temporary).

This section lists the table of contents for §§20.2010-1T through 20.2010-3T.

§20.2010-1T   Unified credit against estate tax; in general (temporary).

(a) General rule.

(b) Special rule in case of certain gifts made before 1977.

(c) Credit limitation.

(d) Explanation of terms.

(1) Applicable credit amount.

(2) Applicable exclusion amount.

(3) Basic exclusion amount.

(4) Deceased spousal unused exclusion (DSUE) amount.

(5) Last deceased spouse.

(e) Effective/applicability date.

(f) Expiration date.

§20.2010-2T   Portability provisions applicable to estate of a decedent survived by a spouse (temporary).

(a) Election required for portability.

(1) Timely filing required.

(2) Portability election upon filing of estate tax return.

(3) Portability election not made; requirements for election not to apply.

(4) Election irrevocable.

(5) Estates eligible to make the election.

(6) Persons permitted to make the election.

(7) Requirements of return.

(b) Computation required for portability election.

(1) General rule.

(2) Transitional rule.

(c) Computation of the DSUE amount.

(1) General rule.

(2) Special rule to consider gift taxes paid by decedent.

(3) [Reserved]

(4) Special rule in case of property passing to qualified domestic trust.

(5) Examples.

(d) Authority to examine returns of decedent.

(e) Effective/applicability date.

(f) Expiration date.

§20.2010-3T   Portability provisions applicable to the surviving spouse's estate (temporary).

(a) Surviving spouse's estate limited to DSUE amount of last deceased spouse.

(1) In general.

(2) No DSUE amount available from last deceased spouse.

(3) Identity of last deceased spouse unchanged by subsequent marriage or divorce.

(b) Special rule in case of multiple deceased spouses and a previously-applied DSUE amount.

(1) In general.

(2) Example.

(c) Date DSUE amount taken into consideration by surviving spouse's estate.

(1) General rule.

(2) Special rule when property passes to surviving spouse in a qualified domestic trust.

(d) Authority to examine returns of deceased spouses.

(e) Availability of DSUE amount for estates of nonresidents who are not citizens.

(f) Effective/applicability date.

(g) Expiration date.

[T.D. 9593, 77 FR 36156, June 18, 2012]

§20.2010-1T   Unified credit against estate tax; in general (temporary).

(a) General rule. Section 2010(a) allows the estate of every decedent a credit against the estate tax imposed by section 2001. The allowable credit is the applicable credit amount. See paragraph (d)(1) of this section for an explanation of the term applicable credit amount.

(b) Special rule in case of certain gifts made before 1977. The applicable credit amount allowable under paragraph (a) of this section must be reduced by an amount equal to 20 percent of the aggregate amount allowed as a specific exemption under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976, and before January 1, 1977.

(c) Credit limitation. The applicable credit amount allowed under paragraph (a) of this section cannot exceed the amount of the estate tax imposed by section 2001.

(d) Explanation of terms. The explanation of terms in this section applies to this section and to §§20.2010-2T and 20.2010-3T.

(1) Applicable credit amount. The term applicable credit amount refers to the allowable credit against estate tax imposed by section 2001 and gift tax imposed by section 2501. The applicable credit amount equals the amount of the tentative tax that would be determined under section 2001(c) if the amount on which such tentative tax is to be computed were equal to the applicable exclusion amount. The applicable credit amount is determined by applying the unified rate schedule in section 2001(c) to the applicable exclusion amount.

(2) Applicable exclusion amount. The applicable exclusion amount equals the sum of the basic exclusion amount and, in the case of a surviving spouse, the deceased spousal unused exclusion (DSUE) amount.

(3) Basic exclusion amount. The basic exclusion amount is the sum of—

(i) For any decedent dying in calendar year 2011, $5,000,000; and

(ii) For any decedent dying after calendar year 2011, $5,000,000 multiplied by the cost-of-living adjustment determined under section 1(f)(3) for that calendar year by substituting “calendar year 2010” for “calendar year 1992” in section 1(f)(3)(B) and by rounding to the nearest multiple of $10,000.

(4) Deceased spousal unused exclusion (DSUE) amount. The term DSUE amount refers, generally, to the unused portion of a decedent's applicable exclusion amount to the extent this amount does not exceed the basic exclusion amount in effect in the year of the decedent's death. For rules on computing the DSUE amount, see §§20.2010-2T(c) and 20.2010-3T(b).

(5) Last deceased spouse. The term last deceased spouse means the most recently deceased individual who, at that individual's death after December 31, 2010, was married to the surviving spouse. See §§20.2010-3T(a) and 25.2505-2T(a) of this chapter for additional rules pertaining to the identity of the last deceased spouse for purposes of determining the applicable exclusion amount of the surviving spouse.

(e) Effective/applicability date. Paragraphs (d)(2), (d)(3), (d)(4), and (d)(5) of this section apply to the estates of decedents dying in calendar year 2011 or a subsequent year in which the applicable exclusion amount is determined under section 2010(c) of the Internal Revenue Code by adding the basic exclusion amount and, in the case of a surviving spouse, the DSUE amount. Paragraphs (a), (b), (c), and (d)(1) of this section apply to the estates of decedents dying on or after June 15, 2012.

(f) Expiration date. The applicability of this section expires on or before June 15, 2015.

[T.D. 9593, 77 FR 36157, June 18, 2012]

§20.2010-2T   Portability provisions applicable to estate of a decedent survived by a spouse (temporary).

(a) Election required for portability. To allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount, the executor of the decedent's estate must elect portability of the DSUE amount on a timely-filed Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return” (estate tax return). This election is referred to in this section and in §20.2010-3T as the portability election.

(1) Timely filing required. An estate that elects portability will be considered, for purposes of Subtitle B and Subtitle F of the Internal Revenue Code (Code), to be required to file a return under section 6018(a). Accordingly, the due date of an estate tax return required to elect portability is 9 months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). See §§20.6075-1 and 20.6081-1 for additional rules relating to the time for filing estate tax returns.

(2) Portability election upon filing of estate tax return. Upon the timely filing of a complete and properly-prepared estate tax return, an executor of an estate of a decedent (survived by a spouse) will have elected portability of the decedent's DSUE amount unless the executor chooses not to elect portability and satisfies the requirement in paragraph (a)(3)(i) of this section. See paragraph (a)(7) of this section for the return requirements related to the portability election.

(3) Portability election not made; requirements for election not to apply. The executor of the estate of a decedent (survived by a spouse) will not make or be considered to make the portability election if either of the following applies:

(i) The executor states affirmatively on a timely-filed estate tax return, or in an attachment to that estate tax return, that the estate is not electing portability under section 2010(c)(5). The manner in which the executor may make this affirmative statement on the estate tax return will be as set forth in the instructions issued with respect to such form (“Instructions for Form 706”).

(ii) The executor does not timely file an estate tax return in accordance with paragraph (a)(1) of this section.

(4) Election irrevocable. An executor of the estate of a decedent (survived by a spouse) who timely files an estate tax return may make and may supersede a portability election previously made, provided that the estate tax return reporting the decision not to make a portability election is filed on or before the due date of the return, including extensions actually granted. However, see paragraph (a)(6) of this section when contrary elections are made by more than one person permitted to make the election. The portability election, once made, becomes irrevocable once the due date of the estate tax return, including extensions actually granted, has passed.

(5) Estates eligible to make the election. An executor may elect portability on behalf of the estate of a decedent (survived by a spouse) if the decedent dies in calendar year 2011 or during a subsequent period in which portability of a DSUE amount is in effect. However, an executor of the estate of a nonresident decedent who was not a citizen of the United States at the time of death may not elect portability on behalf of that decedent, and the timely filing of such a decedent's estate tax return will not constitute the making of a portability election.

(6) Persons permitted to make the election—(i) Appointed executor. An executor or administrator of the estate of a decedent (survived by a spouse) that is appointed, qualified, and acting within the United States, within the meaning of section 2203 (an appointed executor), may file the estate tax return on behalf of the estate of the decedent and, in so doing, elect portability of the decedent's DSUE amount. An appointed executor also may elect not to have portability apply pursuant to paragraph (a)(3) of this section.

(ii) Non-appointed executor. If there is no appointed executor, any person in actual or constructive possession of any property of the decedent (a non-appointed executor) may file the estate tax return on behalf of the estate of the decedent and, in so doing, elect portability of the decedent's DSUE amount, or, by complying with paragraph (a)(3) of this section, may elect not to have portability apply. A portability election made by a non-appointed executor cannot be superseded by a contrary election made by another non-appointed executor of that same decedent's estate (unless such other non-appointed executor is the successor of the non-appointed executor who made the election). See §20.6018-2 for additional rules relating to persons permitted to file the estate tax return.

(7) Requirements of return—(i) General rule. An estate tax return will be considered complete and properly-prepared for purposes of this section if it is prepared in accordance with the instructions issued for the estate tax return (Instructions for Form 706) and if the requirements of §§20.6018-2, 20.6018-3, and 20.6018-4 are satisfied. However, see paragraph (a)(7)(ii) of this section for reduced requirements applicable to certain property of certain estates.

(ii) Reporting of value not required for certain property—(A) In general. A special rule applies with respect to certain property of estates in which the executor is not required to file an estate tax return under section 6018(a), as determined without regard to paragraph (a)(1) of this section. With respect to such an estate, for bequests, devises, or transfers of property included in the gross estate, the value of which is deductible under section 2056 or 2056A (marital deduction property) or under section 2055(a) (charitable deduction property), an executor is not required to report a value for such property on the estate tax return (except to the extent provided in this paragraph (a)(7)(ii)(A)) and will be required to report only the description, ownership, and/or beneficiary of such property, along with all other information necessary to establish the right of the estate to the deduction in accordance with §§20.2056(a)-1(b)(i) through (iii) and 20.2055-1(c), as applicable. However, this rule does not apply to marital deduction property or charitable deduction property if—

(1) The value of such property relates to, affects, or is needed to determine, the value passing from the decedent to another recipient;

(2) The value of such property is needed to determine the estate's eligibility for the provisions of sections 2032, 2032A, 6166, or another provision of the Code;

(3) Less than the entire value of an interest in property includible in the decedent's gross estate is marital deduction property or charitable deduction property; or

(4) A partial disclaimer or partial qualified terminable interest property (QTIP) election is made with respect to a bequest, devise, or transfer of property includible in the gross estate, part of which is marital deduction property or charitable deduction property.

(B) Statement required on the return. Paragraph (a)(7)(ii)(A) of this section applies only if the executor exercises due diligence to estimate the fair market value of the gross estate, including the property described in paragraph (a)(7)(ii)(A) of this section. The Instructions for Form 706 will provide ranges of dollar values, and the executor must identify on the estate tax return an amount corresponding to the particular range within which falls the executor's best estimate of the total gross estate. Until such time as the prescribed form for the estate tax return expressly includes this estimate in the manner described in the preceding sentence, the executor must include the executor's best estimate, rounded to the nearest $250,000, on or attached to the estate tax return, signed under penalties of perjury.

(C) Examples. The following examples illustrate the application of paragraph (a)(7)(ii) of this section. In each example, assume that Husband (H) dies in 2011, survived by his wife (W), that both H and W are US citizens, that H's gross estate does not exceed the excess of the applicable exclusion amount for the year of his death over the total amount of H's adjusted taxable gifts and any specific exemption under section 2521, and that H's executor (E) timely files Form 706 solely to make the portability election.

Example 1. (i) Facts. The assets includible in H's gross estate consist of a parcel of real property and bank accounts held jointly with W with rights of survivorship, a life insurance policy payable to W, and a survivor annuity payable to W for her life. H made no taxable gifts during his lifetime.

(ii) Application. E files an estate tax return on which these assets are identified on the proper schedule, but E provides no information on the return with regard to the date of death value of these assets in accordance with paragraph (a)(7)(ii)(A) of this section. To establish the estate's entitlement to the marital deduction in accordance with §20.2056(a)-1(b) (except with regard to establishing the value of the property) and the instructions for the estate tax return, E includes with the estate tax return evidence to verify the title of each jointly held asset, to confirm that W is the sole beneficiary of both the life insurance policy and the survivor annuity, and to verify that the annuity is exclusively for W's life. Finally, E certifies on the estate return E's best estimate, determined by exercising due diligence, of the fair market value of the gross estate in accordance with paragraph (a)(7)(ii)(B) of this section. The estate tax return is considered complete and properly prepared and E has elected portability.

Example 2. (i) Facts. H's will, duly admitted to probate and not subject to any proceeding to challenge its validity, provides that H's entire estate is to be distributed to a QTIP trust for W. The non-probate assets includible in H's gross estate consist of a life insurance policy payable to H's children from a prior marriage, and H's individual retirement account (IRA) payable to W. H made no taxable gifts during his lifetime.

(ii) Application. E files an estate tax return on which all of the assets includible in the gross estate are identified on the proper schedule. In the case of the probate assets and the IRA, no information is provided with regard to date of death value in accordance with paragraph (a)(7)(ii)(A) of this section. However, E makes a QTIP election and attaches a copy of H's will creating the QTIP, and describes each such asset and its ownership to establish the estate's entitlement to the marital deduction in accordance with the instructions for the estate tax return and §20.2056(a)-1(b) (except with regard to establishing the value of the property). In the case of the life insurance policy payable to H's children, all of the regular return requirements, including reporting and establishing the fair market value of such asset, apply. Finally, E certifies on the estate return E's best estimate, determined by exercising due diligence, of the fair market value of the gross estate in accordance with paragraph (a)(7)(ii)(B) of this section. The estate tax return is considered complete and properly prepared and E has elected portability.

(iii) Variation. The facts are the same except that there are no non-probate assets, and E elects to make only a partial QTIP election. In this case, the regular return requirements apply to all of the property includible in the gross estate and the provisions of paragraph (a)(7)(ii) of this section do not apply.

Example 3. (i) Facts. H's will, duly admitted to probate and not subject to any proceeding to challenge its validity, provides that 50 percent of the property passing under the terms of H's will is to be paid to a marital trust for W and 50 percent is to be paid to a trust for W and their descendants.

(ii) Application. The amount passing to the non-marital trust cannot be verified without knowledge of the full value of the property passing under the will. Therefore, the value of the property of the marital trust relates to or affects the value passing to the trust for W and the descendants of H and W. Accordingly, the general return requirements apply to all of the property includible in the gross estate and the provisions of paragraph (a)(7)(ii) of this section do not apply.

(b) Computation required for portability election—(1) General rule. In addition to the requirements described in paragraph (a) of this section, an executor of a decedent's estate must include a computation of the DSUE amount on the estate tax return to elect portability and thereby allow the decedent's surviving spouse to take into account that decedent's DSUE amount. See paragraph (b)(2) of this section for a transitional rule when the estate tax return form prescribed by the Internal Revenue Service (IRS) does not show expressly the computation of the DSUE amount. See paragraph (c) of this section for rules on computing the DSUE amount.

(2) Transitional rule. Until such time as the prescribed form for the estate tax return expressly includes a computation of the DSUE amount, a complete and properly-prepared estate tax return will be deemed to include the computation of the DSUE amount. See paragraph (a)(7) of this section for the requirements for a return to be considered complete and properly-prepared. Once the IRS revises the prescribed form for the estate tax return to include expressly the computation of the DSUE amount, executors that previously filed an estate tax return pursuant to this transitional rule will not be required to file a supplemental estate tax return using the revised form.

(c) Computation of the DSUE amount—(1) General rule. Subject to paragraphs (c)(2) through (c)(4) of this section, the DSUE amount of a decedent with a surviving spouse is the lesser of the following amounts—

(i) The basic exclusion amount in effect in the year of the death of the decedent; or

(ii) The excess of—

(A) The decedent's applicable exclusion amount; over

(B) The sum of the amount of the taxable estate and the amount of the adjusted taxable gifts of the decedent, which together is the amount on which the tentative tax on the decedent's estate is determined under section 2001(b)(1).

(2) Special rule to consider gift taxes paid by decedent. Solely for purposes of computing the decedent's DSUE amount, the amount of the adjusted taxable gifts of the decedent referred to in paragraph (c)(1)(ii)(B) of this section is reduced by the amount, if any, on which gift taxes were paid for the calendar year of the gift(s).

(3) [Reserved]

(4) Special rule in case of property passing to qualified domestic trust. When property passes for the benefit of a surviving spouse in a qualified domestic trust (QDOT) as defined in section 2056A(a), the DSUE amount of the decedent is computed on the decedent's estate tax return for the purpose of electing portability in the same manner as this amount is computed under paragraph (c)(1) of this section, but this DSUE amount is subject to subsequent adjustments. The DSUE amount of the decedent must be redetermined upon the occurrence of the final distribution or other event (generally the death of the surviving spouse or the earlier termination of all QDOTs for that surviving spouse) on which estate tax is imposed under section 2056A. See §20.2056A-6 for rules on determining the estate tax under section 2056A. See §20.2010-3T(c)(2) regarding the timing of the availability of the decedent's DSUE amount to the surviving spouse.

(5) Examples. The following examples illustrate the application of this paragraph (c):

Example 1. Computation of DSUE amount. (i) Facts. In 2002, having made no prior taxable gift, Husband (H) makes a taxable gift valued at $1,000,000 and reports the gift on a timely-filed gift tax return. Because the amount of the gift is equal to the applicable exclusion amount for that year ($1,000,000), $345,800 is allowed as a credit against the tax, reducing the gift tax liability to zero. H dies on September 29, 2011, survived by Wife (W). H and W are US citizens and neither has any prior marriage. H's taxable estate is $1,000,000. The executor of H's estate timely files H's estate tax return and elects portability, thereby allowing W to benefit from H's DSUE amount.

(ii) Application. The executor of H's estate computes H's DSUE amount to be $3,000,000 (the lesser of the $5,000,000 basic exclusion amount in 2011, or the excess of H's $5,000,000 applicable exclusion amount over the sum of the $1,000,000 taxable estate and the $1,000,000 amount of adjusted taxable gifts).

Example 2. Computation of DSUE amount when gift tax paid. (i) Facts. The facts are the same as in Example 1 except that the value of H's taxable gift in 2002 is $2,000,000. After application of the applicable credit amount, H owes gift tax on $1,000,000, the amount of the gift in excess of the applicable exclusion amount for that year. H pays the gift tax owed on the transfer in 2002.

(ii) Application. On H's death, the executor of H's estate computes the DSUE amount to be $3,000,000 (the lesser of the $5,000,000 basic exclusion amount in 2011, or the excess of H's $5,000,000 applicable exclusion amount over the sum of the $1,000,000 taxable estate and $1,000,000 adjusted taxable gifts). H's adjusted taxable gifts of $2,000,000 were reduced for purposes of this computation by $1,000,000, the amount of taxable gifts on which gift taxes were paid.

Example 3. Computation of DSUE amount when QDOT created. (i) Facts. Husband (H), a US citizen, makes his first taxable gift in 2002, valued at $1,000,000, and reports the gift on a timely-filed gift tax return. No gift tax is due because the applicable exclusion amount for that year ($1,000,000) equals the fair market value of the gift. H dies in 2011 with a gross estate of $2,000,000. H's wife (W) is a US resident but not a citizen of the United States and, under H's will, a pecuniary bequest of $1,500,000 passes to a QDOT for the benefit of W. H's executor timely files an estate tax return and makes the QDOT election for the property passing to the QDOT, and H's estate is allowed a marital deduction of $1,500,000 under section 2056(d) for the value of that property. H's taxable estate is $500,000. On H's estate tax return, H's executor computes H's preliminary DSUE amount to be $3,500,000 (the lesser of the $5,000,000 basic exclusion amount in 2011, or the excess of H's $5,000,000 applicable exclusion amount over the sum of the $500,000 taxable estate and the $1,000,000 adjusted taxable gifts). No taxable events within the meaning of section 2056A occur during W's lifetime with respect to the QDOT, and W makes no taxable gifts. In 2012, W dies and the value of the assets of the QDOT is $1,800,000.

(ii) Application. H's DSUE amount is redetermined to be $1,700,000 (the lesser of the $5,000,000 basic exclusion amount in 2011, or the excess of H's $5,000,000 applicable exclusion amount over $3,300,000 (the sum of the $500,000 taxable estate augmented by the $1,800,000 of QDOT assets and the $1,000,000 adjusted taxable gifts)).

(d) Authority to examine returns of decedent. The IRS may examine returns of a decedent in determining the decedent's DSUE amount, regardless of whether the period of limitations on assessment has expired for that return. See §20.2010-3T(d) for additional rules relating to the IRS's authority to examine returns. See also section 7602 for the IRS's authority, when ascertaining the correctness of any return, to examine any returns that may be relevant or material to such inquiry.

(e) Effective/applicability date. This section applies to the estates of decedents dying in calendar year 2011 or a subsequent year in which the applicable exclusion amount is determined under section 2010(c) of the Code by adding the basic exclusion amount and, in the case of a surviving spouse, the DSUE amount.

(f) Expiration date. The applicability of this section expires on or before June 15, 2015.

[T.D. 9593, 77 FR 36157, June 18, 2012]

§20.2010-3T   Portability provisions applicable to the surviving spouse's estate (temporary).

(a) Surviving spouse's estate limited to DSUE amount of last deceased spouse—(1) In general. A deceased spousal unused exclusion (DSUE) amount of a decedent, computed under §20.2010-2T(c), is included in determining a surviving spouse's applicable exclusion amount under section 2010(c)(2), provided—

(i) Such decedent is the last deceased spouse of such surviving spouse within the meaning of §20.2010-1T(d)(5) on the date of the death of the surviving spouse; and

(ii) The executor of the decedent's estate elected portability (see §20.2010-2T(a) and (b) for applicable requirements).

(2) No DSUE amount available from last deceased spouse. If the last deceased spouse of such surviving spouse had no DSUE amount, or if the executor of such a decedent's estate did not make a portability election, the surviving spouse's estate has no DSUE amount (except as provided in paragraph (b)(1)(ii) of this section) to be included in determining the applicable exclusion amount, even if the surviving spouse previously had a DSUE amount available from another decedent who, prior to the death of the last deceased spouse, was the last deceased spouse of such surviving spouse. See paragraph (b) of this section for a special rule in the case of multiple deceased spouses and a previously-applied DSUE amount.

(3) Identity of last deceased spouse unchanged by subsequent marriage or divorce. A decedent is the last deceased spouse (as defined in §20.2010-1T(d)(5)) of a surviving spouse even if, on the date of the death of the surviving spouse, the surviving spouse is married to another (then-living) individual. If a surviving spouse marries again and that marriage ends in divorce or an annulment, the subsequent death of the divorced spouse does not end the status of the prior deceased spouse as the last deceased spouse of the surviving spouse. The divorced spouse, not being married to the surviving spouse at death, is not the last deceased spouse as that term is defined in §20.2010-1T(d)(5).

(b) Special rule in case of multiple deceased spouses and previously-applied DSUE amount—(1) In general. A special rule applies to compute the DSUE amount included in the applicable exclusion amount of a surviving spouse who previously has applied the DSUE amount of one or more deceased spouses to taxable gifts in accordance with §25.2505-2T(b) and (c) of this chapter. If a surviving spouse has applied the DSUE amount of one or more last deceased spouses to the surviving spouse's transfers during life, and if any of those last deceased spouses is different from the surviving spouse's last deceased spouse as defined in §20.2010-1T(d)(5) at the time of the surviving spouse's death, then the DSUE amount to be included in determining the applicable exclusion amount of the surviving spouse at the time of the surviving spouse's death is the sum of—

(i) The DSUE amount of the surviving spouse's last deceased spouse as described in paragraph (a)(1) of this section; and

(ii) The DSUE amount of each other deceased spouse of the surviving spouse, to the extent that such amount was applied to one or more taxable gifts of the surviving spouse.

(2) Example. The following example, in which all described individuals are US citizens, illustrates the application of this paragraph (b):

Example. (i) Facts. Husband 1 (H1) dies on January 15, 2011, survived by Wife (W). Neither has made any taxable gifts during H1's lifetime. H1's executor elects portability of H1's DSUE amount. The DSUE amount of H1 as computed on the estate tax return filed on behalf of H1's estate is $5,000,000. On December 31, 2011, W makes taxable gifts to her children valued at $2,000,000. W reports the gifts on a timely-filed gift tax return. W is considered to have applied $2,000,000 of H1's DSUE amount to the amount of taxable gifts, in accordance with §25.2505-2T(c), and, therefore, W owes no gift tax. W has an applicable exclusion amount remaining in the amount of $8,000,000 ($3,000,000 of H1's remaining DSUE amount plus W's own $5,000,000 basic exclusion amount). After the death of H1, W marries Husband 2 (H2). H2 dies in June 2012. H2's executor elects portability of H2's DSUE amount, which is properly computed on H2's estate tax return to be $2,000,000. W dies in October 2012.

(ii) Application. The DSUE amount to be included in determining the applicable exclusion amount available to W's estate is $4,000,000, determined by adding the $2,000,000 DSUE amount of H2 and the $2,000,000 DSUE amount of H1 that was applied by W to W's 2011 taxable gifts. Thus, W's applicable exclusion amount is $9,000,000.

(c) Date DSUE amount taken into consideration by surviving spouse's estate—(1) General rule. A portability election made by an executor of a decedent's estate (see §20.2010-2T(a) and (b) for applicable requirements) applies as of the date of the decedent's death. Thus, the decedent's DSUE amount is included in the applicable exclusion amount of the decedent's surviving spouse under section 2010(c)(2) and will be applicable to transfers made by the surviving spouse after the decedent's death. However, such decedent's DSUE amount will not be included in the applicable exclusion amount of the surviving spouse, even if the surviving spouse had made a transfer in reliance on the availability or computation of the decedent's DSUE amount:

(i) If the executor of the decedent's estate supersedes the portability election by filing a subsequent estate tax return in accordance with §20.2010-2T(a)(4);

(ii) To the extent that the DSUE amount subsequently is reduced by a valuation adjustment or the correction of an error in calculation; or

(iii) To the extent that the surviving spouse cannot substantiate the DSUE amount claimed on the surviving spouse's return.

(2) Special rule when property passes to surviving spouse in a qualified domestic trust. When property passes from a decedent for the benefit of a surviving spouse in one or more qualified domestic trusts (QDOT) as defined in section 2056A(a) and the decedent's executor elects portability, the DSUE amount available to be included in the applicable exclusion amount of the surviving spouse under section 2010(c)(2) is the DSUE amount of the decedent as redetermined in accordance with §20.2010-2T(c)(4). The earliest date on which the decedent's DSUE amount may be included in the applicable exclusion amount of the surviving spouse under section 2010(c)(2) is the date of the occurrence of the final QDOT distribution or final other event (generally, the death of the surviving spouse or the earlier termination of all QDOTs for that surviving spouse) on which tax under section 2056A is imposed. However, the decedent's DSUE amount as redetermined in accordance with §20.2010-2T(c)(4) may be applied to certain taxable gifts of the surviving spouse. See §25.2505-2T(d)(2)(i) of this chapter.

(d) Authority to examine returns of deceased spouses. For the purpose of determining the DSUE amount to be included in the applicable exclusion amount of the surviving spouse, the Internal Revenue Service (IRS) may examine returns of each of the surviving spouse's deceased spouses whose DSUE amount is claimed to be included in the surviving spouse's applicable exclusion amount, regardless of whether the period of limitations on assessment has expired for any such return. The IRS's authority to examine returns of a deceased spouse applies with respect to each transfer by the surviving spouse to which a DSUE amount is or has been applied. Upon examination, the IRS may adjust or eliminate the DSUE amount reported on such a return; however, the IRS may assess additional tax on that return only if that tax is assessed within the period of limitations on assessment under section 6501 applicable to the tax shown on that return. See also section 7602 for the IRS's authority, when ascertaining the correctness of any return, to examine any returns that may be relevant or material to such inquiry. For purposes of these examinations to determine the DSUE amount, the surviving spouse is considered to have a material interest that is affected by the return information of the deceased spouse within the meaning of section 6103(e)(3).

(e) Availability of DSUE amount for estates of nonresidents who are not citizens. The estate of a nonresident surviving spouse who is not a citizen of the United States at the time of such surviving spouse's death shall not take into account the DSUE amount of any deceased spouse of such surviving spouse within the meaning of §20.2010-1T(d)(5) except to the extent allowed under any applicable treaty obligation of the United States. See section 2102(b)(3).

(f) Effective/applicability date. This section applies to the estates of decedents dying in calendar year 2011 or a subsequent year in which the applicable exclusion amount is determined under section 2010(c) of the Code by adding the basic exclusion amount and, in the case of a surviving spouse, the DSUE amount.

(g) Expiration date. The applicability of this section expires on or before June 15, 2015.

[T.D. 9593, 77 FR 36160, June 18, 2012]

Credits Against Tax

§20.2011-1   Credit for State death taxes.

(a) In general. A credit is allowed under section 2011 against the Federal estate tax for estate, inheritance, legacy or succession taxes actually paid to any State, Territory, or the District of Columbia, or, in the case of decedents dying before September 3, 1958, any possession of the United States (hereinafter referred to as “State death taxes”). The credit, however, is allowed only for State death taxes paid (1) with respect to property included in the decedent's gross estate, and (2) with respect to the decedent's estate. The amount of the credit is subject to the limitation described in paragraph (b) of this section. It is subject to further limitations described in §20.2011-2 if a deduction is allowed under section 2053(d) for State death taxes paid with respect to a charitable gift. See paragraph (a) of §20.2014-1 as to the allowance of a credit for death taxes paid to a possession of the United States in a case where the decedent died after September 2, 1958.

(b) Amount of credit. (1) If the decedent's taxable estate does not exceed $40,000, the credit for State death taxes is zero. If the decedent's taxable estate does exceed $40,000, the credit for State death taxes is limited to an amount computed in accordance with the following table:

Table for Computation of Maximum Credit for State Death Taxes

(A)—Taxable estate equal to or more than—(B)—Taxable estate less than—(C)—Credit on amount in column (A)(D)—Rates of credit on excess over amount in column (A) (percent)
$40,000$90,0000.8
90,000140,000$4001.6
140,000240,0001,2002.4
240,000440,0003,6003.2
440,000640,00010,0004.0
640,000840,00018,0004.8
840,0001,040,00027,6005.6
1,040,0001,540,00038,8006.4
1,540,0002,040,00070,8007.2
2,040,0002,540,000106,8008.0
2,540,0003,040,000146,8008.8
3,040,0003,540,000190,8009.6
3,540,0004,040,000238,80010.4
4,040,0005,040,000290,80011.2
5,040,0006,040,000402,80012.0
6,040,0007,040,000522,80012.8
7,040,0008,040,000650,80013.6
8,040,0009,040,000786,80014.4
9,040,00010,040,000930,80015.2
10,040,0001,082,80016.0

(2) Subparagraph (1) of this paragraph may be illustrated by the following example:

Example. (i) The decedent died January 1, 1955, leaving a taxable estate of $150,000. On January 1, 1956, inheritance taxes totaling $2,500 were actually paid to a State with respect to property included in the decedent's gross estate. Reference to the table discloses that the specified amount in column (A) nearest to but less than the value of the decedent's taxable estate is $140,000. The maximum credit in respect of this amount, as indicated in column (C), is $1,200. The amount by which the taxable estate exceeds the same specified amount is $10,000. The maximum credit in respect of this amount, computed at the rate of 2.4 percent indicated in column (D), is $240. Thus, the maximum credit in respect of the decedent's taxable estate of $150,000 is $1,440, even though $2,500 in inheritance taxes was actually paid to the State.

(ii) If, in subdivision (i) of this example, the amount actually paid to the State was $950, the credit for State death taxes would be limited to $950. If, in subdivision (i) of this example, the decedent's taxable estate was $35,000, no credit for State death taxes would be allowed.

(c) Miscellaneous limitations and conditions to credit—(1) Period of limitations. The credit for State death taxes is limited under section 2011(c) to those taxes which were actually paid and for which a credit was claimed within four years after the filing of the estate tax return for the decedent's estate. If, however, a petition has been filed with the Tax Court of the United States for the redetermination of a deficiency within the time prescribed in section 6213(a), the credit is limited to those taxes which were actually paid and for which a credit was claimed within four years after the filing of the return or within 60 days after the decision of the Tax Court becomes final, whichever period is the last to expire. Similarly, if an extension of time has been granted under section 6161 for payment of the tax shown on the return, or of a deficiency, the credit is limited to those taxes which were actually paid and for which a credit was claimed within four years after the filing of the return, or before the date of the expiration of the period of the extension, whichever period is last to expire. If a claim for refund or credit of an overpayment of the Federal estate tax is filed within the time prescribed in section 6511, the credit for State death taxes is limited to such taxes as were actually paid and credit therefor claimed within four years after the filing of the return or before the expiration of 60 days from the date of mailing by certified or registered mail by the district director to the taxpayer of a notice of disallowance of any part of the claim, or before the expiration of 60 days after a decision by any court of competent jurisdiction becomes final with respect to a timely suit instituted upon the claim, whichever period is the last to expire. See section 2015 for the applicable period of limitations for credit for State death taxes on reversionary or remainder interests if an election is made under section 6163(a) to postpone payment of the estate tax attributable to reversionary or remainder interests. If a claim for refund based on the credit for State death taxes is filed within the applicable period described in this subparagraph, a refund may be made despite the general limitation provisions of sections 6511 and 6512. Any refund based on the credit described in this section shall be made without interest.

(2) Submission of evidence. Before the credit for State death taxes is allowed, evidence that such taxes have been paid must be submitted to the district director. The district director may require the submission of a certificate from the proper officer of the taxing State, Territory, or possession of the United States, or the District of Columbia, showing: (i) The total amount of tax imposed (before adding interest and penalties and before allowing discount); (ii) the amount of any discount allowed; (iii) the amount of any penalties and interest imposed or charged; (iv) the total amount actually paid in cash; and (v) the date or dates of payment. If the amount of these taxes has been redetermined, the amount finally determined should be stated. The required evidence should be filed with the return, but if that is not convenient or possible, then it should be submitted as soon thereafter as practicable. The district director may require the submission of such additional proof as is deemed necessary to establish the right to the credit. For example, he may require the submission of a certificate of the proper officer of the taxing jurisdiction showing (vi) whether a claim for refund of any part of the State death tax is pending and (vii) whether a refund of any part thereof has been authorized, and if a refund has been made, its date and amount, and a description of the property or interest in respect of which the refund was made. The district director may also require an itemized list of the property in respect of which State death taxes were imposed certified by the officer having custody of the records pertaining to those taxes. In addition, he may require the executor to submit a written statement (containing a declaration that it is made under penalties of perjury) stating whether, to his knowledge, any person has instituted litigation or taken an appeal (or contemplates doing so), the final determination of which may affect the amount of those taxes. See section 2016 concerning the redetermination of the estate tax if State death taxes claimed as credit are refunded.

(d) Definition of “basic estate tax”. Section 2011(d) provides definitions of the terms “basic estate tax” and “additional estate tax”, used in the Internal Revenue Code of 1939, and “estate tax imposed by the Revenue Act of 1926”, for the purpose of supplying a means of computing State death taxes under local statutes using those terms, and for use in determining the exemption provided for in section 2201 for estates of certain members of the Armed Forces. See section 2011(e)(3) for a modification of these definitions if a deduction is allowed under section 2053(d) for State death taxes paid with respect to a charitable gift.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6526, 26 FR 414, Jan. 19, 1961]

§20.2011-2   Limitation on credit if a deduction for State death taxes is allowed under section 2053(d).

If a deduction is allowed under section 2053(d) for State death taxes paid with respect to a charitable gift, the credit for State death taxes is subject to special limitations. Under these limitations, the credit cannot exceed the least of the following:

(a) The amount of State death taxes paid other than those for which a deduction is allowed under section 2053(d);

(b) The amount indicated in section 2011(b) to be the maximum credit allowable with respect to the decedent's taxable estate; or

(c) An amount, A, which bears the same ratio to B (the amount which would be the maximum credit allowable under section 2011(b) if the deduction under section 2053(d) for State death taxes were not allowed in computing the decedent's taxable estate) as C (the amount of State death taxes paid other than those for which a deduction is allowed under section 2053(d)) bears to D (the total amount of State death taxes paid). For the purpose of this computation, in determining what the decedent's taxable estate would be if the deduction for State death taxes under section 2053(d) were not allowed, adjustment must be made for the decrease in the deduction for charitable gifts under section 2055 or 2106(a)(2) (for estates of nonresidents not citizens) by reason of any increase in Federal estate tax which would be charged against the charitable gifts.

The application of this section may be illustrated by the following example:

Example. The decedent died January 1, 1955, leaving a gross estate of $925,000. Expenses, indebtedness, etc., amounted to $25,000. The decedent bequeathed $400,000 to his son with the direction that the son bear the State death taxes on the bequest. The residuary estate was left to a charitable organization. Except as noted above, all Federal and State death taxes were payable out of the residuary estate. The State imposed death taxes of $60,000 on the son's bequest and death taxes of $75,000 on the bequest to charity. No death taxes were imposed by a foreign country with respect to any property in the gross estate. The decedent's taxable estate (determined without regard to the limitation imposed by section 2011(e)(2)(B) is computed as follows:
Gross estate$925,000.00
Expenses, indebtedness, etc.$25,000.00
Exemption60,000.00
Deduction under section 2053(d)75,000.00
Charitable deduction:
Gross estate$925,000.00
Expenses, etc$25,000.00
Bequest to son400,000.00
State death tax paid from residue75,000.00
Federal estate tax paid from residue122,916.67622,916.67302,083.33462,083.33
Taxable estate462,916.67
If the deduction under section 2053(d) were not allowed, the decedent's taxable estate would be computed as follows:
Gross estate$925,000.00
Expenses, indebtedness, etc.$25,000.00
Exemption60,000.00
Charitable deduction:
Gross estate$925,000.00
Expenses, etc$25,000.00
Bequest to son400,000.00
State death tax paid from residue75,000.00
Federal estate tax paid from residue155,000.00655,000.00270,000.00355,000.00
Taxable estate570,000.00
On a taxable estate of $570,000, the maximum credit allowable under section 2011(b) would be $15,200. Under these facts, the credit for State death taxes is determined as follows:
(1) Amount of State death taxes paid other than those for which a deduction is allowed under section 2053(d) ($135,000−$75,000)$60,000.00
(2) Amount indicated in section 2011(b) to be the maximum credit allowable with respect to the decedent's taxable estate of $462,916.6710,916.67
(3) Amount determined by use of the ratio described in paragraph (c) above [($60,000÷$135,000)×$15,200]6,755.56
(4) Credit for State death taxes (least of subparagraphs (1) through (3) above)6,755.56

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 4983, May 29, 1962]

§20.2012-1   Credit for gift tax.

(a) In general. With respect to gifts made before 1977, a credit is allowed under section 2012 against the Federal estate tax for gift tax paid under chapter 12 of the Internal Revenue Code, or corresponding provisions of prior law, on a gift by the decedent of property subsequently included in the decedent's gross estate. The credit is allowable even though the gift tax is paid after the decedent's death and the amount of the gift tax is deductible from the gross estate as a debt of the decedent.

(b) Limitations on credit. The credit for gift tax is limited to the smaller of the following amounts:

(1) The amount of gift tax paid on the gift computed as set forth in paragraph (c) of this section, or

(2) The amount of the estate tax attributable to the inclusion of the gift in the gross estate, computed as set forth in paragraph (d) of this section.

When more than one gift is included in the gross estate, a separate computation of the two limitations on the credit is to be made for each gift.

(c) “First limitation”. The amount of the gift tax paid on the gift is the “first limitation”. Thus, if only one gift was made during a certain calendar quarter, or calendar year if the gift was made before January 1, 1971, and the gift is wholly included in the decedent's gross estate for the purpose of the estate tax, the credit with respect to the gift is limited to the amount of the gift tax paid for that calendar quarter or calendar year. On the other hand, if more than one gift was made during a certain calendar quarter or calendar year, the credit with respect to any such gift which is included in the decedent's gross estate is limited under section 2012(d) to an amount, A, which bears the same ratio to B (the total gift tax paid for that calendar quarter or calendar year) as C (the “amount of the gift,” computed as described below) bears to D (the total taxable gifts for the calendar quarter or the calendar year, computed without deduction of the gift tax specific exemption). Stated algebraically, the “first limitation” (A) equals:

“Amount of the gift” (C) ÷ Total taxable gifts, plus specific exemption allowed (D) × Total gift tax paid (B).

For purposes of the ratio stated above, the “amount of the gift” referred to as factor “C” is the value of the gift reduced by any portion excluded or deducted under sections 2503(b) (annual exclusion), 2522 (charitable deduction), or 2523 (marital deduction) of the Internal Revenue Code or corresponding provisions of prior law. In making the computations described in this paragraph, the values to be used are those finally determined for the purpose of the gift tax, irrespective of the values determined for the purpose of the estate tax. A similar computation is made in case only a portion of any gift is included in the decedent's gross estate. The application of this paragraph may be illustrated by the following example:

Example. The donor made gifts during the calendar year 1955 on which a gift tax was determined as shown below:
Gift of property to son on February 1$13,000
Gift of property to wife on May 186,000
Gift of property to charitable organization on May 1510,000
Total gifts109,000
Less exclusions ($3,000 for each gift)9,000
Total included amount of gifts100,000
Marital deduction (for gift to wife)$43,000
Charitable deduction7,000
Specific exemption ($30,000 less $20,000 used in prior years)10,000
Total deductions60,000
Taxable gifts40,000
Total gift tax paid for calendar year 19553,600

The donor's gift to his wife was made in contemplation of death and was thereafter included in his gross estate. Under the “first limitation”, the credit with respect to that gift cannot exceed:

[$86,000 − $3,000 − $43,000 (gift to wife, less annual exclusion and marital deduction)] ÷ [$40,000 + $10,000 (taxable gifts, plus specific exemption allowed)] × $3,600 (total gift tax paid) = $2,880.

(d) “Second limitation”. (1) The amount of the estate tax attributable to the inclusion of the gift in the gross estate is the “second limitation”. Thus, the credit with respect to any gift of property included in the gross estate is limited to an amount, E, which bears the same ratio to F (the gross estate tax, reduced by any credit for State death taxes under section 2011) as G (the “value of the gift”, computed as described in subparagraph (2) of this paragraph) bears to H (the value of entire gross estate, reduced by the total deductions allowed under sections 2055 or 2106(a)(2) (charitable deduction) and 2056 (marital deduction)). Stated algebraically, the “second limitation” (E) equals:

“Value of the gift” (G) ÷ Value of gross estate, less marital and charitable deductions (H) × Gross estate tax, less credit for State death taxes (F).

(2) For purposes of the ratio stated in subparagraph (1) of this paragraph, the “value of the gift” referred to as factor “G” is the value of the property transferred by gift and included in the gross estate, as determined for the purpose of the gift tax or for the purpose of the estate tax, whichever is lower, and adjusted as follows:

(i) The appropriate value is reduced by all or a portion of any annual exclusion allowed for gift tax purposes under section 2503(b) of the Internal Revenue Code or corresponding provisions of prior law. If the gift tax value is lower than the estate tax value, it is reduced by the entire amount of the exclusion. If the estate tax value is lower than the gift tax value, it is reduced by an amount which bears the same ratio to the estate tax value as the annual exclusion bears to the total value of the property as determined for gift tax purposes. To illustrate: In 1955, a donor, in contemplation of death, transferred certain property to his five children which was valued at $300,000, for the purpose of the gift tax. Thereafter, the same property was included in his gross estate at a value of $270,000. In computing his gift tax, the donor was allowed annual exclusions totalling $15,000. The reduction provided for in this subdivision is:

$15,000 (annual exclusions allowed) ÷ $300,000 (value of transferred property for the purpose of the gift tax) × $270,000 (value of transferred property for the purpose of the estate tax) = $13,500.

(ii) The appropriate value is further reduced if any portion of the value of the property is allowed as a marital deduction under section 2056 or as a charitable deduction under section 2055 or section 2106(a)(2) (for estates of nonresidents not citizens). The amount of the reduction is an amount which bears the same ratio to the value determined under subdivision (i) of this subparagraph as the portion of the property allowed as a marital deduction or as a charitable deduction bears to the total value of the property as determined for the purpose of the estate tax. Thus, if a gift is made solely to the decedent's surviving spouse and is subsequently included in the decedent's gross estate as having been made in contemplation of death, but a marital deduction is allowed under section 2056 for the full value of the gift, no credit for gift tax on the gift will be allowed since the reduction under this subdivision together with the reduction under subdivision (i) of this subparagraph will have the effect of reducing the factor “G” of the ratio in subparagraph (1) of this paragraph to zero.

(e) Credit for “split gifts”. If a decedent made a gift of property which is thereafter included in his gross estate, and, under the provisions of section 2513 of the Internal Revenue Code of 1954 or section 1000(f) of the Internal Revenue Code of 1939, the gift was considered as made one-half by the decedent and one-half by his spouse, credit against the estate tax is allowed for the gift tax paid with respect to both halves of the gift. The “first limitation” is to be separately computed with respect to each half of the gift in accordance with the principles stated in paragraph (c) of this section. The “second limitation” is to be computed with respect to the entire gift in accordance with the principles stated in paragraph (d) of this section. To illustrate: A donor, in contemplation of death, transferred property valued at $106,000 to his son on January 1, 1955, and he and his wife consented that the gift should be considered as made one-half by him and one-half by her. The property was thereafter included in the donor's gross estate. Under the “first limitation”, the amount of the gift tax of the donor paid with respect to the one-half of the gift considered as made by him is determined to be $11,250, and the amount of the gift tax of his wife paid with respect to the one-half of the gift considered as made by her is determined to be $1,200. Under the “second limitation”, the amount of the estate tax attributable to the property is determined to be $28,914. Therefore, the credit for gift tax allowed is $12,450 ($11,250 plus $1,200).

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 7238, 37 FR 28718, Dec. 29, 1972; T.D. 8522, 59 FR 9646, Mar. 1, 1994]

§20.2013-1   Credit for tax on prior transfers.

(a) In general. A credit is allowed under section 2013 against the Federal estate tax imposed on the present decedent's estate for Federal estate tax paid on the transfer of property to the present decedent from a transferor who died within ten years before, or within two years after, the present decedent's death. See §20.2013-5 for definition of the terms “property” and “transfer”. There is no requirement that the transferred property be identified in the estate of the present decedent or that the property be in existence at the time of the decedent's death. It is sufficient that the transfer of the property was subjected to Federal estate tax in the estate of the transferor and that the transferor died within the prescribed period of time. The executor must submit such proof as may be requested by the district director in order to establish the right of the estate to the credit.

(b) Limitations on credit. The credit for tax on prior transfers is limited to the smaller of the following amounts:

(1) The amount of the Federal estate tax attributable to the transferred property in the transferor's estate, computed as set forth in §20.2013-2; or

(2) The amount of the Federal estate tax attributable to the transferred property in the decedent's estate, computed as set forth in §20.2013-3.

Rules for valuing property for purposes of the credit are contained in §20.2013-4.

(c) Percentage reduction. If the transferor died within the two years before, or within the two years after, the present decedent's death, the credit is the smaller of the two limitations described in paragraph (b) of this section. If the transferor predeceased the present decedent by more than two years, the credit is a certain percentage of the smaller of the two limitations described in paragraph (b) of this section, determined as follows:

(1) 80 percent, if the transferor died within the third or fourth years preceding the present decedent's death;

(2) 40 percent, if the transferor died within the fifth or sixth years preceding the present decedent's death;

(3) 40 percent, if the transferor died within the seventh or eighth years preceding the present decedent's death; and

(4) 20 percent, if the transferor died within the ninth or tenth years preceding the present decedent's death.

The word “within” as used in this paragraph means “during”. Therefore, if a death occurs on the second anniversary of another death, the first death is considered to have occurred within the two years before the second death. If the credit for tax on prior transfers relates to property received from two or more transferors, the provisions of this paragraph are to be applied separately with respect to the property received from each transferor. See paragraph (d) of example (2) in §20.2013-6.

(d) Examples. For illustrations of the application of this section, see examples (1) and (2) set forth in §20.2013-6.

§20.2013-2   “First limitation”.

(a) The amount of the Federal estate tax attributable to the transferred property in the transferor's estate is the “first limitation.” Thus, the credit is limited to an amount, A, which bears the same ratio to B (the “transferor's adjusted Federal estate tax”, computed as described in paragraph (b) of this section) as C (the value of the property transferred (see §20.2013-4)) bears to D (the “transferor's adjusted taxable estate”, computed as described in paragraph (c) of this section). Stated algebraically, the “first limitation” (A) equals:

Value of transferred property (C) ÷ “Transferor's adjusted taxable estate” (D) × “Transferor's adjusted Federal estate tax” (B).

(b) For purposes of the ratio stated in paragraph (a) of this section, the “transferor's adjusted Federal estate tax” referred to as factor “B” is the amount of the Federal estate tax paid with respect to the transferor's estate plus:

(1) Any credit allowed the transferor's estate for gift tax under section 2012, or the corresponding provisions of prior law; and

(2) Any credit allowed the transferor's estate, under section 2013, for tax on prior transfers, but only if the transferor acquired property from a person who died within 10 years before the death of the present decedent.

(c)(1) For purposes of the ratio stated in paragraph (a) of this section, the “transferor's adjusted taxable estate” referred to as factor “D” is the amount of the transferor's taxable estate (or net estate) decreased by the amount of any “death taxes” paid with respect to his gross estate and increased by the amount of the exemption allowed in computing his taxable estate (or net estate). The amount of the transferor's taxable estate (or net estate) is determined in accordance with the provisions of §20.2051-1 in the case of a citizen or resident of the United States or of §20.2106-1 in the case of a nonresident not a citizen of the United States (or the corresponding provisions of prior regulations). The term “death taxes” means the Federal estate tax plus all other estate, inheritance, legacy, succession, or similar death taxes imposed by, and paid to, any taxing authority, whether within or without the United States. However, only the net amount of such taxes paid is taken into consideration.

(2) The amount of the exemption depends upon the citizenship and residence of the transferor at the time of his death. Except in the case of a decedent described in section 2209 (relating to certain residents of possessions of the United States who are considered nonresidents not citizens), if the decedent was a citizen or resident of the United States, the exemption is the $60,000 authorized by section 2052 (or the corresponding provisions of prior law). If the decedent was a nonresident not a citizen of the United States, or is considered under section 2209 to have been such a nonresident, the exemption is the $30,000 or $2,000, as the case may be, authorized by section 2106(a)(3) (or the corresponding provisions of prior law), or such larger amount as is authorized by section 2106(a)(3)(B) or may have been allowed as an exemption pursuant to the prorated exemption provisions of an applicable death tax convention. See §20.2052-1 and paragraph (a)(3) of §20.2106-1.

(d) If the credit for tax on prior transfers relates to property received from two or more transferors, the provisions of this section are to be applied separately with respect to the property received from each transferor. See paragraph (b) of example (2) in §20.2013-6.

(e) For illustrations of the application of this section, see examples (1) and (2) set forth in §20.2013-6.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7296, 38 FR 34191, Dec. 12, 1973]

§20.2013-3   “Second limitation”.

(a) The amount of the Federal estate tax attributable to the transferred property in the present decedent's estate is the “second limitation”. Thus, the credit is limited to the difference between—

(1) The net estate tax payable (see paragraph (b)(5) or (c), as the case may be, of §20.0-2) with respect to the present decedent's estate, determined without regard to any credit for tax on prior transfers under section 2013 or any credit for foreign death taxes claimed under the provisions of a death tax convention, and

(2) The net estate tax determined as provided in subparagraph (1) of this paragraph but computed by subtracting from the present decedent's gross estate the value of the property transferred (see §20.2013-4), and by making only the adjustment indicated in paragraph (b) of this section if a charitable deduction is allowable to the estate of the present decedent.

(b) If a charitable deduction is allowable to the estate of the present decedent under the provisions of section 2055 or section 2106 (a)(2) (for estates of nonresidents not citizens), for purposes of determining the tax described in paragraph (a)(2) of this section, the charitable deduction otherwise allowable is reduced by an amount, E, which bears the same ratio to F (the charitable deduction otherwise allowable) as G (the value of the transferred property (see §20.2013-4)) bears to H (the value of the present decedent's gross estate reduced by the amount of the deductions for expenses, indebtedness, taxes, losses, etc., allowed under the provisions of sections 2053 and 2054 or section 2106(a)(1) (for estates of nonresidents not citizens)). See paragraph (c)(2) of example (1) and paragraph (c)(2) of example (2) in §20.2013-6.

(c) If the credit for tax on prior transfers relates to property received from two or more transferors, the property received from all transferors is aggregated in determining the limitation on credit under this section (the “second limitation”). However, the limitation so determined is apportioned to the property received from each transferor in the ratio that the property received from each transferor bears to the total property received from all transferors. See paragraph (c) of example (2) in §20.2013-6.

(d) For illustrations of the application of this section, see examples (1) and (2) set forth in §20.2013-6.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7296, 38 FR 34191, Dec. 12, 1973]

§20.2013-4   Valuation of property transferred.

(a) For purposes of section 2013 and §§20.2013-1 to 20.2013-6, the value of the property transferred to the decedent is the value at which the property was included in the transferor's gross estate for the purpose of the Federal estate tax (see sections 2031, 2032, 2103, and 2107, and the regulations thereunder) reduced as indicated in paragraph (b) of this section. If the decedent received a life estate or a remainder or other limited interest in property that was included in a transferor decedent's gross estate, the value of the interest is determined as of the date of the transferor's death on the basis of recognized valuation principles (see §§20.2031-7 (or, for certain prior periods, §20.2031-7A) and 20.7520-1 through 20.7520-4). The application of this paragraph may be illustrated by the following examples:

Example (1). A died on January 1, 1953, leaving Blackacre to B. The property was included in A's gross estate at a value of $100,000. On January 1, 1955, B sold Blackacre to C for $150,000. B died on February 1, 1955. For purposes of computing the credit against the tax imposed on B's estate, the value of the property transferred to B is $100,000.
Example (2). A died on January 1, 1953, leaving Blackacre to B for life and, upon B's death, remainder to C. At the time of A's death, B was 56 years of age. The property was included in A's gross estate at a value of $100,000. The part of that value attributable to the life estate is $44,688 and the part of that value attributable to the remainder is $55,312 (see §20.2031-7A(b)). B died on January 1, 1955, and C died on January 1, 1956. For purposes of computing the credit against the tax imposed on B's estate, the value of the property transferred to B is $44,688. For purposes of computing the credit against the tax imposed on C's estate, the value of the property transferred to C is $55,312.

(b) In arriving at the value of the property transferred to the decedent, the value at which the property was included in the transferor's gross estate (see paragraph (a) of this section) is reduced as follows:

(1) By the amount of the Federal estate tax and any other estate, inheritance, legacy, or succession taxes which were payable out of the property transferred to the decedent or which were payable by the decedent in connection with the property transferred to him. For example, if under the transferor's will or local law all death taxes are to be paid out of other property with the result that the decedent receives a bequest free and clear of all death taxes, no reduction is to be made under this subparagraph;

(2) By the amount of any marital deduction allowed the transferor's estate under section 2056 (or under section 812(e) of the Internal Revenue Code of 1939) if the decedent was the spouse of the transferor at the time of the transferor's death;

(3)(i) By the amount of administration expenses in accordance with the principles of §20.2056(b)-4(d).

(ii) This paragraph (b)(3) applies to transfers from estates of decedents dying on or after December 3, 1999; and

(4)(i) By the amount of any encumbrance on the property or by the amount of any obligation imposed by the transferor and incurred by the decedent with respect to the property, to the extent such charges would be taken into account if the amount of a gift to the decedent of such property were being determined.

(ii) For purposes of this subparagraph, an obligation imposed by the transferor and incurred by the decedent with respect to the property includes a bequest, etc., in lieu of the interest of the surviving spouse under community property laws, unless the interest was, immediately prior to the transferor's death, a mere expectancy. However, an obligation imposed by the transferor and incurred by the decedent with respect to the property does not include a bequest, devise, or other transfer in lieu of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the transferor's property or estate.

(iii) The application of this subparagraph may be illustrated by the following examples:

Example (1). The transferor devised to the decedent real estate subject to a mortgage. The value of the property transferred to the decedent does not include the amount of the mortgage. If, however, the transferor by his will directs the executor to pay off the mortgage, such payment constitutes an additional amount transferred to the decedent.
Example (2). The transferor bequeathed certain property to the decedent with a direction that the decedent pay $1,000 to X. The value of the property transferred to the decedent is the value of the property reduced by $1,000.
Example (3). The transferor bequeathed certain property to his wife, the decedent, in lieu of her interest in property held by them as community property under the law of the State of their residence. The wife elected to relinquish her community property interest and to take the bequest. The value of the property transferred to the decedent is the value of the property reduced by the value of the community property interest relinquished by the wife.
Example (4). The transferor bequeathed to the decedent his entire residuary estate, out of which certain claims were to be satisfied. The entire distributable income of the transferor's estate (during the period of its administration) was applied toward the satisfaction of these claims and the remaining portion of the claims was satisfied by the decedent out of his own funds. Thus, the decedent received a larger sum upon settlement of the transferor's estate than he was actually bequeathed. The value of the property transferred to the decedent is the value at which such property was included in the transferor's gross estate, reduced by the amount of the estate income and the decedent's own funds paid out in satisfaction of the claims.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 7077, 35 FR 18461, Dec. 4, 1970; T.D. 7296, 38 FR 34191, Dec. 12, 1973; T.D. 8522, 59 FR 9646, Mar. 1, 1994; T.D. 8540, 59 FR 30151, June 10, 1994; T.D. 8846, 64 FR 67764, Dec. 3, 1999]

§20.2013-5   “Property” and “transfer” defined.

(a) For purposes of section 2013 and §§20.2013-1 to 20.2013-6, the term “property” means any beneficial interest in property, including a general power of appointment (as defined in section 2041) over property. Thus, the term does not include an interest in property consisting merely of a bare legal title, such as that of a trustee. Nor does the term include a power of appointment over property which is not a general power of appointment (as defined in section 2041). Examples of property, as described in this paragraph, are annuities, life estates, estates for terms of years, vested or contingent remainders and other future interests.

(b) In order to obtain the credit for tax on prior transfers, there must be a transfer of property described in paragraph (a) of this section by or from the transferor to the decedent. The term “transfer” of property by or from a transferor means any passing of property or an interest in property under circumstances which were such that the property or interest was included in the gross estate of the transferor. In this connection, if the decedent receives property as a result of the exercise or nonexercise of a power of appointment, the donee of the power (and not the creator) is deemed to be the transferor of the property if the property subject to the power is includible in the donee's gross estate under section 2041 (relating to powers of appointment). Thus, notwithstanding the designation by local law of the capacity in which the decedent takes, property received from the transferor includes interests in property held by or devolving upon the decedent: (1) As spouse under dower or curtesy laws or laws creating an estate in lieu of dower or curtesy; (2) as surviving tenant of a tenancy by the entirety or joint tenancy with survivorship rights; (3) as beneficiary of the proceeds of life insurance; (4) as survivor under an annuity contract; (5) as donee (possessor) of a general power of appointment (as defined in section 2041); (6) as appointee under the exercise of a general power of appointment (as defined in section 2041); or (7) as remainderman under the release or nonexercise of a power of appointment by reason of which the property is included in the gross estate of the donee of the power under section 2041.

(c) The application of this section may be illustrated by the following example:

Example: A devises Blackacre to B, as trustee, with directions to pay the income therefore to C, his son, for life. Upon C's death. Blackacre is to be sold. C is given a general testamentary power, to appoint one-third of the proceeds, and a testamentary power, which is not a general power, to appoint the remaining two-thirds of the proceeds, to such of the issue of his sister D as he should choose. D has a daughter, E, and a son, F. Upon his death, C exercised his general power by appointing one-third of the proceeds to D and his special power by appointing two-thirds of the proceeds to E. Since B's interest in Blackacre as a trustee is not a beneficial interest, no part of it is “property” for purpose of the credit in B's estate. On the other hand, C's life estate and his testamentary power over the one-third interest in the remainder constitute “property” received from A for purpose of the credit in C's estate. Likewise, D's one-third interest in the remainder received through the exercise of C's general power of appointment is “property” received from C for purpose of the credit in D's estate. No credit is allowed E's estate for the property which passed to her from C since the property was not included in C's gross estate. On the other hand, no credit is allowed in E's estate for property passing to her from A since her interest was not susceptible of valuation at the time of A's death (see §20.2013-4).

§20.2013-6   Examples.

The application of §§20.2013-1 to 20.2013-5 may be further illustrated by the following examples:

Example (1). (a) A died December 1, 1953, leaving a gross estate of $1,000,000. Expenses, indebtedness, etc., amounted to $90,000. A bequeathed $200,000 to B, his wife, $100,000 of which qualified for the marital deduction. B died November 1, 1954, leaving a gross estate of $500,000. Expenses, indebtedness, etc., amounted to $40,000. B bequeathed $150,000 to charity. A and B were both citizens of the United States. The estates of A and B both paid State death taxes equal to the maximum credit allowable for State death taxes. Death taxes were not a charge on the bequest to B.

(b) “First limitation” on credit for B's estate (§20.2013-2):

A's gross estate$1,000,000.00
Expenses, indebtedness, etc.90,000.00
   A's adjusted gross estate910,000.00
Marital deduction$100,000.00
Exemption60,000.00
   160,000.00
   A's taxable estate750,000.00
   A's gross estate tax233,200.00
Credit for State death taxes23,280.00
   A's net estate tax payable209,920.00
“First limitation” = $209,920.00 (§20.2013-2(b)) × [($200,000.00 − $100,000.00) (§20.2013-4) ÷ ($750,000.00 − $209,920.00 − $23,280.00 + $60,000.00) (§20.2013-2(c))]$36,393.90
(c) “Second limitation” on credit for B's estate (§20.2013-3):

(1) B's net estate tax payable as described in §20.2013-3(a)(1) (previously taxed transfer included):

B's gross estate$500,000.00
Expenses, indebtedness, etc.$40,000.00
Charitable deduction150,000.00
Exemption60,000.00
      250,000.00
   B's taxable estate   250,000.00
B's gross estate tax$65,700.00
Credit for State death taxes3,920.00
   B's net estate tax payable61,780.00
(2) B's net estate tax payable as described in §20.2013-3(a)(2) (previously taxed transfer excluded):
B's gross estate$400,000.00
Expenses, indebtedness, etc$40,000.00
Charitable deduction (§20.2013-3(b))=$150,000.00 − [$150,000.00 × ($200,000.00 − $100,000.00 ÷ $500,000.00 − $40,000.00)]117,391.30
Exemption60,000.00
      217,391.30
B's taxable estate182,608.70
B's gross estate tax45,482.61
Credit for State death taxes2,221.61
   B's net estate tax payable43,260.00
(3) “Second limitation”:
Subparagraph (1)$61,780.00
Less: Subparagraph (2)43,260.00
      $18,520.00
(d) Credit of B's estate for tax on prior transfers (§20.2013-1(c)):
Credit for tax on prior transfers=$18,520.00 (lower of paragraphs (b) and (c))×100 percent (percentage to be taken into account under §20.2013-1(c))$18,520.00
Example (2). (a) The facts are the same as those contained in example (1) of this paragraph with the following additions. C died December 1, 1950, leaving a gross estate of $250,000. Expenses, indebtedness, etc., amounted to $50,000. C bequeathed $50,000 to B. C was a citizen of the United States. His estate paid State death taxes equal to the maximum credit allowable for State death taxes. Death taxes were not a charge on the bequest to B.

(b) “First limitation” on credit for B's estate (§20.2013-2(d))−

(1) With respect to the property received from A:

“First limitation”=$36,393.90 (this computation is identical with the one contained in paragraph (b) of example (1) of this section).

(2) With respect to the property received from C:

C's gross estate   $250,000.00
Expenses, indebtedness, etc.$50,000.00
Exemption$60,000.00
      $110,000.00
   C's taxable estate   140,000.00
C's gross estate tax32,700.00
Credit for State death taxes   1,200.00
   C's net estate tax payable   31,500.00
“First limitation” = $31,500.00 (§20.2013-2(b)) × [$50,000.00 (§20.2013-4) ÷ ($140,000.00 − $31,500.00 − $1,200.00 + $60,000.00) (§20.2013-2(c))]$9,414.23
(c) “Second limitation” on credit for B's estate (§20.2013-3(c)):

(1) B's net estate tax payable as described in §20.2013-3(a)(1) (previously taxed transfers included)=$61,780.00 (this computation is identical with the one contained in paragraph (c)(1) of example (1) of this section).

(2) B's net estate tax payable as described in §20.2013-3(a)(2) (previously taxed transfers excluded):

B's gross estate$350,000.00
Expenses, indebtedness, etc$40,000.00
Charitable deduction (§20.2013-3(b)) = $150,000.00 − [$150,000.00 × ($200,000.00 − $100,000.00 + $50,000.00) ÷ ($500,000.00 − $40,000.00)]101,086.96
Exemption60,000.00
201,086.96
   B's taxable estate148,913.04
B's gross estate tax35,373.91
Credit for State death taxes1,413.91
   B's net estate tax payable33,960.00
(3) “Second limitation”:
Subparagraph (1)$61,780.00
Less: Subparagraph (2)33,960.00
      $27,820.00
(4) Apportionment of “second limitation” on credit:
Transfer from A (§20.2013-4)$100,000.00
Transfer from C (§20.2013-4)50,000.00
   Total150,000.00
Portion of “second limitation” attributable to transfer from A (100/150 of $27,820.00)18,546.67
Portion of “second limitation” attributable to transfer from C (50/150 of $27,820.00)9,273.33
(d) Credit of B's estate for tax on prior transfers (§20.2013-1(c)):
Credit for tax on transfer from A=
$18,546.67 (lower of “first limitation” computed in paragraph (b)(1) and “second limitation” apportioned to A's transfer in paragraph (c)(4)) × 100 percent (percentage to be taken into account under §20.2013-1(c))$18,546.67
Credit for tax on transfer from C=
$9,273.33 (lower of “first limitation” computed in paragraph (b)(2) and “second limitation” apportioned to B's transfer in paragraph (c)(4)) × 80 percent (percentage to be taken into account under §20.2013-1(c))7,418.66
Total credit for tax on prior transfers25,965.33

§20.2014-1   Credit for foreign death taxes.

(a) In general. (1) A credit is allowed under section 2014 against the Federal estate tax for any estate, inheritance, legacy, or succession taxes actually paid to any foreign country (hereinafter referred to as “foreign death taxes”). The credit is allowed only for foreign death taxes paid (i) with respect to property situated within the country to which the tax is paid, (ii) with respect to property included in the decedent's gross estate, and (iii) with respect to the decedent's estate. The credit is allowable to the estate of a decedent who was a citizen of the United States at the time of his death. The credit is also allowable, as provided in paragraph (c) of this section, to the estate of a decedent who was a resident but not a citizen of the United States at the time of his death. The credit is not allowable to the estate of a decedent who was neither a citizen nor a resident of the United States at the time of his death. See paragraph (b)(1) of §20.0-1 for the meaning of the term “resident” as applied to a decedent. The credit is allowable not only for death taxes paid to foreign countries which are states in the international sense, but also for death taxes paid to possessions or political subdivisions of foreign states. With respect to the estate of a decedent dying after September 2, 1958, the term “foreign country”, as used in this section and §§20.2014-2 to 20.2014-6, includes a possession of the United States. See §§20.2011-1 and 20.2011-2 for the allowance of a credit for death taxes paid to a possession of the United States in the case of a decedent dying before September 3, 1958. No credit is allowable for interest or penalties paid in connection with foreign death taxes.

(2) In addition to the credit for foreign death taxes under section 2014, similar credits are allowed under death tax conventions with certain foreign countries. If credits against the Federal estate tax are allowable under section 2014, or under section 2014 and one or more death tax conventions, for death taxes paid to more than one country, the credits are combined and the aggregate amount is credited against the Federal estate tax, subject to the limitation provided for in paragraph (c) of §20.2014-4. For application of the credit in cases involving a death tax convention, see §20.2014-4.

(3) No credit is allowable under section 2014 in connection with property situated outside of the foreign country imposing the tax for which credit is claimed. However, such a credit may be allowable under certain death tax conventions. In the case of a tax imposed by a political subdivision of a foreign country, credit for the tax shall be allowed with respect to property having a situs in that foreign country, even though, under the principles described in this subparagraph, the property has a situs in a political subdivision different from the one imposing the tax. Whether or not particular property of a decedent is situated in the foreign country imposing the tax is determined in accordance with the same principles that would be applied in determining whether or not similar property of a nonresident decedent not a citizen of the United States is situated within the United States for Federal estate tax purposes. See §§20.2104-1 and 20.2105-1. For example, under §20.2104-1 shares of stock are deemed to be situated in the United States only if issued by a domestic corporation. Thus, a share of corporate stock is regarded as situated in the foreign country imposing the tax only if the issuing corporation is incorporated in that country. Further, under §20.2105-1 amounts receivable as insurance on the life of a nonresident not a citizen of the United States at the time of his death are not deemed situated in the United States. Therefore, in determining the credit under section 2014 in the case of a decedent who was a citizen or resident of the United States, amounts receivable as insurance on the life of the decedent and payable under a policy issued by a corporation incorporated in a foreign country are not deemed situated in such foreign country. In addition, under §20.2105-1 in the case of an estate of a nonresident not a citizen of the United States who died on or after November 14, 1966, a debt obligation of a domestic corporation is not considered to be situated in the United States if any interest thereon would be treated under section 862(a)(1) as income from sources without the United States by reason of section 861(a)(1)(B) (relating to interest received from a domestic corporation less than 20 percent of whose gross income for a 3-year period was derived from sources within the United States). Accordingly, a debt obligation the primary obligor on which is a corporation incorporated in the foreign country imposing the tax is not considered to be situated in that country if, under circumstances corresponding to those described in §20.2105-1 less than 20 percent of the gross income of the corporation for the 3-year period was derived from sources within that country. Further, under §20.2104-1 in the case of an estate of a nonresident not a citizen of the United States who died before November 14, 1966, a bond for the payment of money is not situated within the United States unless it is physically located in the United States. Accordingly, in the case of the estate of a decedent dying before November 14, 1966, a bond is deemed situated in the foreign country imposing the tax only if it is physically located in that country. Finally, under §20.2105-1 moneys deposited in the United States with any person carrying on the banking business by or for a nonresident not a citizen of the United States who died before November 14, 1966, and who was not engaged in business in the United States at the time of death are not deemed situated in the United States. Therefore, an account with a foreign bank in the foreign country imposing the tax is not considered to be situated in that country under corresponding circumstances.

(4) Where a deduction is allowed under section 2053(d) for foreign death taxes paid with respect to a charitable gift, the credit for foreign death taxes is subject to further limitations as explained in §20.2014-7.

(b) Limitations on credit. The credit for foreign death taxes is limited to the smaller of the following amounts:

(1) The amount of a particular foreign death tax attributable to property situated in the country imposing the tax and included in the decedent's gross estate for Federal estate tax purposes, computed as set forth in §20.2014-2; or

(2) The amount of the Federal estate tax attributable to particular property situated in a foreign country, subjected to foreign death tax in that country, and included in the decedent's gross estate for Federal estate tax purposes, computed as set forth in §20.2014-3.

(c) Credit allowable to estate of resident not a citizen. (1) In the case of an estate of a decedent dying before November 14, 1966, who was a resident but not a citizen of the United States, a credit is allowed to the estate under section 2014 only if the foreign country of which the decedent was a citizen or subject, in imposing foreign death taxes, allows a similar credit to the estates of citizens of the United States who were resident in that foreign country at the time of death.

(2) In the case of an estate of a decedent dying on or after November 14, 1966, who was a resident but not a citizen of the United States, a credit is allowed to the estate under section 2014 without regard to the similar credit requirement of subparagraph (1) of this paragraph unless the decedent was a citizen or subject of a foreign country with respect to which there is in effect at the time of the decedent's death a Presidential proclamation, as authorized by section 2014(h), reinstating the similar credit requirement. In the case of an estate of a decedent who was a resident of the United States and a citizen or subject of a foreign country with respect to which such a proclamation has been made, and who dies while the proclamation is in effect, a credit is allowed under section 2014 only if that foreign country, in imposing foreign death taxes, allows a similar credit to the estates of citizens of the United States who were resident in that foreign country at the time of death. The proclamation authorized by section 2014(h) for the reinstatement of the similar credit requirement with respect to the estates of citizens or subjects of a specific foreign country may be made by the President whenever he finds that—

(i) The foreign country, in imposing foreign death taxes, does not allow a similar credit to the estates of citizens of the United States who were resident in the foreign country at the time of death,

(ii) The foreign country, after having been requested to do so, has not acted to provide a similar credit to the estates of such citizens, and

(iii) It is in the public interest to allow the credit under section 2014 to the estates of citizens or subjects of the foreign country only if the foreign country allows a similar credit to the estates of citizens of the United States who were resident in the foreign country at the time of death.

The proclamation for the reinstatement of the similar credit requirement with respect to the estates of citizens or subjects of a specific foreign country may be revoked by the President. In that case, a credit is allowed under section 2014, to the estate of a decedent who was a citizen or subject of that foreign country and a resident of the United States at the time of death, without regard to the similar credit requirement if the decedent dies after the proclamation reinstating the similar credit requirement has been revoked.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6526, 26 FR 415, Jan. 19, 1961; T.D. 6600, 27 FR 4983, May 29, 1962; T.D. 7296, 38 FR 34192, Dec. 12, 1973]

§20.2014-2   “First limitation”.

(a) The amount of a particular foreign death tax attributable to property situated in the country imposing the tax and included in the decedent's gross estate for Federal estate tax purposes is the “first limitation.” Thus, the credit for any foreign death tax is limited to an amount, A, which bears the same ratio to B (the amount of the foreign death tax without allowance of credit, if any, for Federal estate tax), as C (the value of the property situated in the country imposing the foreign death tax, subjected to the foreign death tax, included in the gross estate and for which a deduction is not allowed under section 2053(d)) bears to D (the value of all property subjected to the foreign death tax). Stated algebraically, the “first limitation” (A) equals—

Value of property in foreign country subjected to foreign death tax, included in gross estate and for which a deduction is not allowed under section 2053(d)(C) ÷ Value of all property subjected to foreign death tax (D) × Amount of foreign death tax (B)

The values used in this proportion are the values determined for the purpose of the foreign death tax. The amount of the foreign death tax for which credit is allowable must be converted into United States money. The application of this paragraph may be illustrated by the following example:

Example. At the time of his death on June 1, 1966, the decedent, a citizen of the United States, owned stock in X Corporation (a corporation organized under the laws of Country Y) valued at $80,000. In addition, he owned bonds issued by Country Y valued at $80,000. The stock and bond certificates were in the United States. Decedent left by will $20,000 of the stock and $50,000 of the Country Y bonds to his surviving spouse. He left the rest of the stock and bonds to his son. Under the situs rules referred to in paragraph (a)(3) of §20.2014-1 the stock is deemed situated in Country Y while the bonds are deemed to have their situs in the United States. (The bonds would be deemed to have their situs in Country Y if the decedent had died on or after November 14, 1966.) There is not death tax convention in existence between the United States and Country Y. The laws of Country Y provide for inheritance taxes computed as follows:
Inheritance tax of surviving spouse:
Value of stock$20,000
Value of bonds50,000
Total value70,000
Tax (16 percent rate)11,200
Inheritance tax of son:
Value of stock60,000
Value of bonds$30,000
   Total value90,000
Tax (16 percent rate)14,400

The “first limitation” on the credit for foreign death taxes is:

$20,000 + $60,000 (factor C of the ratio stated at §20.2014−2(a)) ÷ $70,000+ $90,000 (factor D of the ratio stated at §20.2014−2(a)) × ($11,200+$14,400) (factor B of the ratio stated at §20.2014-2(a)) = $12,800

(b) If a foreign country imposes more than one kind of death tax or imposes taxes at different rates upon the several shares of an estate, or if a foreign country and a political subdivision or possession thereof each imposes a death tax, a “first limitation” is to be computed separately for each tax or rate and the results added in order to determine the total “first limitation.” The application of this paragraph may be illustrated by the following example:

Example. The facts are the same as those contained in the example set forth in paragraph (a) of this section, except that the tax of the surviving spouse was computed at a 10 percent rate and amounted to $7,000, and the tax of the son was computed at a 20 percent rate and amounted to $18,000. In this case, the “first limitation” on the credit for foreign death taxes is computed as follows:
“First limitation” with respect to inheritance tax of surviving spouse:
[$20,000 (factor C of the ratio stated at §20.2014-2(a)) ÷ $70,000 (factor D of the ratio stated at §20.2014-2(a))] × $7,000 (factor B of the ratio stated at §20.2014-2(a)) =$2,000.
“First limitation” with respect to inheritance tax of son:
[$60,000 (factor C of the ratio stated at §20.2014-2(a)) ÷ $90,000 (factor D of the ratio stated at §20.2014-2(a))] × $18,000 (factor B of the ratio stated at §20.2014-2(a)) =12,000.
   Total “first limitation” on the credit for foreign death taxes14,000

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 4984, May 29, 1962; T.D. 6684, 28 FR 11408, Oct. 24, 1963; T.D. 7296, 38 FR 34193, Dec. 12, 1973; 39 FR 2090, Jan. 17, 1974]

§20.2014-3   “Second limitation”.

(a) The amount of the Federal estate tax attributable to particular property situated in a foreign country, subjected to foreign death tax in that country, and included in the decedent's gross estate for Federal estate tax purposes is the “second limitation.” Thus, the credit is limited to an amount, E, which bears the same ratio to F (the gross Federal estate tax, reduced by any credit for State death taxes under section 2011 and by any credit for gift tax under section 2012) as G (the “adjusted value of the property situated in the foreign country, subjected to foreign death tax, and included in the gross estate”, computed as described in paragraph (b) of this section) bears to H (the value of the entire gross estate, reduced by the total amount of the deductions allowed under sections 2055 (charitable deduction) and 2056 (marital deduction)). Stated algebraically, the “second limitation” (E) equals:

“Adjusted value of the property situated in the foreign country, subjected to foreign death taxes, and included in the gross estate” (G) ÷ Value of entire gross estate, less charitable and marital deductions (H) × Gross Federal estate tax, less credits for State death taxes and gift tax (F)

The values used in this proportion are the values determined for the purpose of the Federal estate tax.

(b) Adjustment is required to factor “G” of the ratio stated in paragraph (a) of this section if a deduction for foreign death taxes under section 2053(d), a charitable deduction under section 2055, or a marital deduction under section 2056 is allowed with respect to the foreign property. If a deduction for foreign death taxes is allowed, the value of the property situated in the foreign country, subjected to foreign death tax, and included in the gross estate does not include the value of any property in respect of which the deduction for foreign death taxes is allowed. See §20.2014-7. If a charitable deduction or a marital deduction is allowed, the value of such foreign property (after exclusion of the value of any property in respect of which the deduction for foreign death taxes is allowed) is reduced as follows:

(1) If a charitable deduction or a marital deduction is allowed to a decedent's estate with respect to any part of the foreign property, except foreign property in respect of which a deduction for foreign death taxes is allowed, specifically bequeathed, devised, or otherwise specifically passing to a charitable organization or to the decedent's spouse, the value of the foreign property is reduced by the amount of the charitable deduction or marital deduction allowed with respect to such specific transfer. See example (1) of paragraph (c) of this section.

(2) If a charitable deduction or a marital deduction is allowed to a decedent's estate with respect to a bequest, devise or other transfer of an interest in a group of assets including both the foreign property and other property, the value of the foreign property is reduced by an amount, I, which bears the same ratio to J (the amount of the charitable deduction or marital deduction allowed with respect to such transfer of an interest in a group of assets) as K (the value of the foreign property, except foreign property in respect of which a deduction for foreign death taxes is allowed, included in the group of assets) bears to L (the value of the entire group of assets). As used in this subparagraph, the term “group of assets” has reference to those assets which, under applicable law, are chargeable with the charitable or marital transfer. See example (2) of paragraph (c) of this section.

Any reduction described in paragraph (b)(1) or (b)(2) of this section on account of the marital deduction must proportionately take into account, if applicable, the limitation on the aggregate amount of the marital deduction contained in §20.2056(a)-1(c). See §20.2014-3(c), Example 3.

(c) The application of paragraphs (a) and (b) of this section may be illustrated by the following examples. In each case, the computations relate to the amount of credit under section 2014 without regard to the amount of credit which may be allowable under an applicable death tax convention.

Example (1). (i) Decedent, a citizen and resident of the United States at the time of his death on February 1, 1967, left a gross estate of $1,000,000 which includes the following: shares of stock issued by a domestic corporation, valued at $750,000; bonds issued in 1960 by the United States and physically located in foreign Country X, valued at $50,000; and shares of stock issued by a Country X corporation, valued at $200,000, with respect to which death taxes were paid to Country X. Expenses, indebtedness, etc., amounted to $60,000. Decedent specifically bequeathed $40,000 of the stock issued by the Country X corporation to a U.S. charity and left the residue of his estate, in equal shares, to his son and daughter. The gross Federal estate tax is $266,500, and the credit for State death taxes is $27,600. Under the situs rules referred to in paragraph (a)(3) of §20.2014-1, the shares of stock issued by the Country X corporation comprise the only property deemed to be situated in Country X. (The bonds also would be deemed to have their situs in Country X if the decedent had died before November 14, 1966.) (ii) The “second limitation” on the credit for foreign death taxes is:

[($200,000 − $40,000 (factor G of the ratio stated at §20.2014-3(a); see also §20.2014-3(b)(1))) ÷ ($1,000,000 − $40,000 (factor H of the ratio stated at §20.2014-3(a)))] × ($266,500 − $27,600) (factor F of the ratio stated at §20.2014-3(a)) = $39,816.67.

The lesser of this amount and the amount of the “first limitation” (computed under §20.2014-2) is the credit for foreign death taxes.

Example (2). (i) Decedent, a citizen and resident of the United States at the time of his death, left a gross estate of $1,000,000 which includes: shares of stock issued by a United States corporation, valued at $650,000; shares of stock issued by a Country X corporation, valued at $200,000; and life insurance, in the amount of $150,000, payable to a son. Expenses, indebtedness, etc., amounted to $40,000. The decedent made a specific bequest of $25,000 of the Country X corporation stock to Charity A and a general bequest of $100,000 to Charity B. The residue of his estate was left to his daughter. The gross Federal estate tax is $242,450 and the credit for State death taxes is $24,480. Under these facts and applicable law, neither the stock of the Country X corporation specifically bequeathed to Charity A nor the insurance payable to the son could be charged with satisfying the bequest to Charity B. Therefore, the “group of assets” which could be so charged is limited to stock of the Country X corporation valued at $175,000 and stock of the United States corporation valued at $650,000.

(ii) Factor “G” of the ratio which is used in determining the “second limitation” is computed as follows:

Value of property situated in Country X$200,000.00
Less:
Reduction described in §20.2014-3(b)(1)$25,000.00
Reduction described in §20.2014-3(b)(2) = [$175,000 (factor K of the ratio stated at §20.2014-3 (b)(2)) ÷ ($175,000 + $650,000 (factor L of the ratio stated at §20.2014-3 (b)(2)))] × $100,000 (factor J of the ratio stated at §20.2014-3(b)(2)) =21,212.12
      46,212.12
   Factor “G” of the ratio153,787.88
(iii) In this case, the “second limitation” on the credit for foreign death taxes is:

[$153,787.88 (factor G of the ratio stated at §20.2014-3(a); see also subdivision (ii) above) ÷ ($1,000,000 − $125,000 (factor H of the ratio stated at §20.2014-3(a)))] × ($242,450 − $24,480) (factor F of the ratio stated at §20.2014-3(a)) = $38,309.88.

Example (3). (i) Decedent, a citizen and resident of the United States at the time of his death, left a gross estate of $850,000 which includes: shares of stock issued by United States corporations, valued at $440,000; real estate located in the United States, valued at $110,000; and shares of stock issued by Country X corporations, valued at $300,000. Expenses, indebtedness, etc., amounted to $50,000. Decedent devised $40,000 in real estate to a United States charity. In addition, he bequeathed to his wife $200,000 in United States stocks and $300,000 in Country X stocks. The residue of his estate passed to his children. The gross Federal estate tax is $81,700 and the credit for State death taxes is $5,520.

(ii) Decedent's adjusted gross estate is $800,000 (i.e., the $850,000, gross estate less $50,000, expenses, indebtedness, etc.). Assume that the limitation imposed by section 2056(c), as in effect before 1982, is applicable so that the aggregate allowable marital deduction is limited to one-half the adjusted gross estate, or $400,000 (which is 50 percent of $800,000). Factor “G” of the ratio which is used in determining the “second limitation” is computed as follows:

Value of property situated in Country X.$300,000
Less: Reduction described in §20.2014-3 (b)(1) determined as follows (see also end of §20.2014-3(b))—
Total amount of bequests which qualify for the marital deduction:
Specific bequest of Country X stock$300,000
Specific bequest of United States stock200,000
   500,000
Limitation on aggregate marital deduction under section 2056(c)400,000
Part of specific bequest of Country X stock with respect to which the marital deduction is allowed—($400,000 ÷ $500,000 × $300,000)240,000
   Factor “G” of the ratio60,000
(iii) Thus, the “second limitation” on the credit for foreign death taxes is:

[$60,000 (factor G of the ratio stated at §20.2014-3(a); see also subdivision (ii) above) ÷ ($850,000 − $40,000 − $400,000 (factor H of the ratio stated at §20.2014-3(a)))] × ($81,700 − $5,520) (factor F of the ratio stated at §20.2014-3(a)) = $11,148.29.

(d) If the foreign country imposes more than one kind of death tax or imposes taxes at different rates upon the several shares of an estate, or if the foreign country and a political subdivision or possession thereof each imposes a death tax, the “second limitation” is still computed by applying the ratio set forth in paragraph (a) of this section. Factor “G” of the ratio is determined by taking into consideration the combined value of the foreign property which is subjected to each different tax or different rate. The combined value, however, cannot exceed the value at which such property was included in the gross estate for Federal estate tax purposes. Thus, if Country X imposes a tax on the inheritance of a surviving spouse at a 10-percent rate and on the inheritance of a son at a 20-percent rate, the combined value of their inheritances is taken into consideration in determining factor “G” of the ratio, which is then used in computing the “second limitation.” However, the “first limitation” is computed as provided in paragraph (b) of §20.2014-2. The lesser of the “first limitation” and the “second limitation” is the credit for foreign death taxes.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 4984, May 29, 1962; T.D. 7296, 38 FR 34193, Dec. 12, 1973; T.D. 8522, 59 FR 9646, Mar. 1, 1994]

§20.2014-4   Application of credit in cases involving a death tax convention.

(a) In general. (1) If credit for a particular foreign death tax is authorized by a death tax convention, there is allowed either the credit provided for by the convention or the credit provided for by section 2014, whichever is the more beneficial to the estate. For cases where credit may be taken under both the death tax convention and section 2014, see paragraph (b) of this section. The application of this paragraph may be illustrated by the following example:

Example. (i) Decedent, a citizen of the United States and a domiciliary of foreign Country X at the time of his death on December 1, 1966, left a gross estate of $1 million which includes the following: Shares of stock issued by a Country X corporation, valued at $400,000; bonds issued in 1962 by the United States and physically located in Country X, valued at $350,000; and real estate located in the United States, valued at $250,000. Expenses, indebtedness, etc., amounted to $50,000. Decedent left his entire estate to his son. There is in effect a death tax convention between the United States and Country X which provides for the allowance of credit by the United States for succession duties imposed by the national government of Country X. The gross Federal estate tax is $307,200, and the credit for State death taxes is $33,760. Country X imposed a net succession duty on the stocks and bonds of $180,000. Under the situs rules referred to in paragraph (a)(3) of §20.2014-1, the shares of stock comprise the only property deemed to be situated in Country X. (If the decedent has died before November 14, 1966, the bonds also would be deemed to have their situs in Country X.) Under the convention, both the stocks and the bonds are deemed to be situated in Country X. In this example all figures are rounded to the nearest dollar.

(ii)(a) The credit authorized by the convention for death taxes imposed by Country X is computed as follows:

(1) Country X tax attributable to property situated in Country X and subjected to tax by both countries ($750,000÷$750,000×$180,000)$180,000
(2) Federal estate tax attributable to property situated in Country X and subjected to tax by both countries—($750,000 ÷ $1,000,000 × $273,440)205,080
(3) Credit (subdivision (1) or (2), whichever is less)180,000
(b) The credit authorized by section 2014 for death taxes imposed by Country X is computed as follows:
(1) “First limitation” computed under §20.2014-2 ($400,000÷$750,000×$180,000)$96,000
(2) “Second limitation” computed under §20.2014-3 ($400,000÷$1,000,000×$273,440)109,376
(3) Credit (subdivision (1) or (2), whichever is less)96,000
(iii) On the basis of the facts contained in this example, the credit of $180,000 authorized by the convention is the more beneficial to the estate.

(2) It should be noted that the greater of the treaty credit and the statutory credit is not necessarily the more beneficial to the estate. Such is the situation, for example, in those cases which involve both a foreign death tax credit and a credit under section 2013 for tax on prior transfers. The reason is that the amount of the credit for tax on prior transfers may differ depending upon whether the credit for foreign death tax is taken under the treaty or under the statute. Therefore, under certain circumstances, the advantage of taking the greater of the treaty credit and the statutory credit may be more than offset by a resultant smaller credit for tax on prior transfers. The solution is to compute the net estate tax payable first on the assumption that the treaty credit will be taken and then on the assumption that the statutory credit will be taken. Such computations will indicate whether the treaty credit or the statutory credit is in fact the more beneficial to the estate.

(b) Taxes imposed by both a foreign country and a political subdivision thereof. If death taxes are imposed by both a foreign country with which the United States has entered into a death tax convention and one or more of its possessions or political subdivisions, there is allowed, against the tax imposed by section 2001—

(1) A credit for the combined death taxes paid to the foreign country and its political subdivisions or possessions as provided for by the convention, or

(2) A credit for the combined death taxes paid to the foreign country and its political subdivisions or possessions as determined under section 2014, or

(3)(i) A credit for that amount of the combined death taxes paid to the foreign country and its political subdivisions or possessions as is allowable under the convention, and

(ii) A credit under section 2014 for the death taxes paid to each political subdivision or possession, but only to the extent such death taxes are not directly or indirectly creditable under the convention.

whichever is the most beneficial to the estate. The application of this paragraph may be illustrated by the following example:

Example. (1) Decedent, a citizen of the United States and a domiciliary of Province Y of foreign Country X at the time of his death on February 1, 1966, left a gross estate of $250,000 which includes the following: Bonds issued by Country X physically located in Province Y, valued at $75,000; bonds issued by Province Z of Country X and physically located in the United States, valued at $50,000; and shares of stock issued by a domestic corporation, valued at $125,000. Decedent left his entire estate to his son. Expenses, indebtedness etc., amounted to $26,000. The Federal estate tax after allowance of the credit for State death taxes is $38,124. Province Y imposed a death tax of 8 percent on the Country X bonds located therein which amounted to $6,000. No death tax was imposed by Province Z. Country X imposed a death tax of 15 percent on the Country X bonds and the Province Z bonds which amounted to $18,750 before allowance of any credit for the death tax of Province Y. Country X allows against its death taxes a credit for death taxes paid to any of its provinces on property which it also taxes, but only to the extent of one-half of the Country X death tax attributable to the property, or the amount of death taxes paid to its province, whichever is less. Country X, therefore, allowed a credit of $5,625 for the death taxes paid to Province Y. There is in effect a death tax convention between the United States and Country X which provides for allowance of credit by the United States for death taxes imposed by the national government of Country X. The death tax convention provides that in computing the “first limitation” for the credit under the convention, the tax of Country X is not to be reduced by the amount of the credit allowed for provincial taxes. Under the situs rules described in paragraph (a)(3) of §20.2014-1, only the Country X bonds located in Province Y are deemed situated in Country X. (The bonds issued by Province Z also would be deemed to have their situs in Country X if the decedent had died on or after November 14, 1966.) Under the convention, both the Country X bonds and the Province Z bonds are deemed to be situated in Country X. In this example all figures are rounded to the nearest dollar.

(2)(i) The credit authorized by section 2014 for death taxes imposed by Country X (which includes death taxes imposed by Province Y according to §20.2014-1(a)(1)) is computed as follows:

(a) “First limitation” with respect to tax imposed by national government of Country X (computed under paragraph (b) of §20.2014-2)
(1) Gross Country X death tax attributable to Country X bonds (before allowance of provincial death taxes) (75,000÷$125,000×$18,750)$11,250
(2) Less credit for Province Y death taxes on such bonds5,625
(3) Net Country X death tax attributable to such bonds5,625
(b) “First limitation” with respect to tax imposed by Province Y (computed under paragraph (b) of §20.2014-2) ($75,000÷$75,000×$6,000)6,000
(c) Total “first limitation”11,625
(d) “Second limitation” (computed under paragraph (d) of §20.2014-3) ($75,000÷$250,000×$38,124)11,437
$(e) Credit (subdivision (c) or (d), whichever is less)11,437
(ii) The credit authorized under the death tax convention between the United States and Country X is computed as follows:
(a) Country X tax attributable to property situated in Country X and subject to tax by both countries ($125,000÷$125,000×$18,750)$18,750
(b) Federal estate tax attributable to property situated in Country X and subjected to tax by both countries ($125,000÷$250,000×$38,124)19,062
(c) Credit (subdivision (a) or (b), whichever is less)18,750
(3) If the estate takes a credit for death taxes under the convention, it would receive a credit of $18,750 which would include an indirect credit of $5,625 for death taxes paid to Province Y. The death tax of Province Y which was not directly or indirectly creditable under the convention is $375 ($6,000− $5,625). A credit for this tax would also be allowed under section 2014 but only to the extent of $187, as the amount of credit for the combined foreign death taxes is limited to the amount of Federal estate tax attributable to the property, determined in accordance with the rules prescribed for computing the “second limitation” under section 2014. In this case, the “second limitation” under section 2014 on the taxes attributable to the Country X bonds is $11,437 (see computation set forth in (2)(i)(d) of this example). The amount of credit under the convention for taxes attributable to Country X bonds is $11,250−($75,000÷$125,000× $18,750). Inasmuch as the “second limitation” under section 2014 in respect of the Country X bonds ($11,437) exceeds the amount of the credit allowed under the convention in respect of the Country X bonds ($11,250) by $187, the additional credit allowable under section 2014 for the death taxes paid to Province Y not directly or indirectly creditable under the convention is limited to $187.

(c) Taxes imposed by two foreign countries with respect to the same property. It is stated as a general rule in paragraph (a)(2) of §20.2014-1 that if credits against the Federal estate tax are allowable under section 2014, or under section 2014 and one or more death tax conventions, for death taxes paid to more than one country, the credits are combined and the aggregate amount is credited against the Federal estate tax. This rule may result in credit being allowed for taxes imposed by two different countries upon the same item of property. If such is the case, the total amount of the credits with respect to such property is limited to the amount of the Federal estate tax attributable to the property, determined in accordance with the rules prescribed for computing the “second limitation” set forth in §20.2014-3. The application of this section may be illustrated by the following example:

Example. The decedent, a citizen of the United States and a domiciliary of Country X at the time of his death on May 1, 1967, left a taxable estate which included bonds issued by Country Z and physically located in Country X. Each of the three countries involved imposed death taxes on the Country Z bonds. Assume that under the provisions of a treaty between the United States and Country X the estate is entitled to a credit against the Federal estate tax for death taxes imposed by Country X on the bonds in the maximum amount of $20,000. Assume, also, that since the decedent died after November 13, 1966, so that under the situs rules referred to in paragraph (a)(3) of §20.2014-1 the bonds are deemed to have their situs in Country Z, the estate is entitled to a credit against the Federal estate tax for death taxes imposed by Country Z on the bonds in the maximum amount of $10,000. Finally, assume that the Federal estate tax attributable to the bonds is $25,000. Under these circumstances, the credit allowed the estate with respect to the bonds would be limited to $25,000.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6742, 29 FR 7928, June 23, 1964; T.D. 7296, 38 FR 34193, Dec. 12, 1973]

§20.2014-5   Proof of credit.

(a) If the foreign death tax has not been determined and paid by the time the Federal estate tax return required by section 6018 is filed, credit may be claimed on the return in an estimated amount. However, before credit for the foreign death tax is finally allowed, satisfactory evidence, such as a statement by an authorized official of each country, possession or political subdivision thereof imposing the tax, must be submitted on Form 706CE certifying:

(1) The full amount of the tax (exclusive of any interest or penalties), as computed before allowance of any credit, remission, or relief;

(2) The amount of any credit, allowance, remission, or relief, and other pertinent information, including the nature of the allowance and a description of the property to which it pertains;

(3) The net foreign death tax payable after any such allowance;

(4) The date on which the death tax was paid, or if not all paid at one time, the date and amount of each partial payment; and

(5) A list of the property situated in the foreign country and subjected to its tax, showing a description and the value of the property.

Satisfactory evidence must also be submitted showing that no refund of the death tax is pending and none is authorized or, if any refund is pending or has been authorized, its amount and other pertinent information. See also section 2016 and §20.2016-1 for requirements if foreign death taxes claimed as a credit are subsequently recovered.

(b) The following information must also be submitted whenever applicable:

(1) If any of the property subjected to the foreign death tax was situated outside of the country imposing the tax, the description of each item of such property and its value.

(2) If more than one inheritance or succession is involved with respect to which credit is claimed, or if the foreign country, possession or political subdivision thereof imposes more than one kind of death tax, or if both the foreign country and a possession or political subdivision thereof each imposes a death tax, a separate computation with respect to each inheritance or succession tax.

(c) In addition to the information required under paragraphs (a) and (b) of this section, the district director may require the submission of any further proof deemed necessary to establish the right to the credit.

§20.2014-6   Period of limitations on credit.

The credit for foreign death taxes under section 2014 is limited to those taxes which were actually paid and for which a credit was claimed within four years after the filing of the estate tax return for the decedent's estate. If, however, a petition has been filed with the Tax Court of the United States for the redetermination of a deficiency within the time prescribed in section 6213(a), the credit is limited to those taxes which were actually paid and for which a credit was claimed within four years after the filing of the return, or before the expiration of 60 days after the decision of the Tax Court becomes final, whichever period is the last to expire. Similarly, if an extension of time has been granted under section 6161 for payment of the tax shown on the return, or of a deficiency, the credit is limited to those taxes which were actually paid and for which a credit was claimed within four years after the filing of the return, or before the date of the expiration of the period of the extension, whichever period is the last to expire. See section 2015 for the applicable period of limitations for credit for foreign death taxes on reversionary or remainder interests if an election is made under section 6163(a) to postpone payment of the estate tax attributable to reversionary or remainder interests. If a claim for refund based on the credit for foreign death taxes is filed within the applicable period described in this section, a refund may be made despite the general limitation provisions of sections 6511 and 6512. Any refund based on the credit for foreign death taxes shall be made without interest.

§20.2014-7   Limitation on credit if a deduction for foreign death taxes is allowed under section 2053(d).

If a deduction is allowed under section 2053(d) for foreign death taxes paid with respect to a charitable gift, the credit for foreign death taxes is subject to special limitations. In such a case the property described in subparagraphs (A), (B), and (C) of paragraphs (1) and (2) of section 2014(b) shall not include any property with respect to which a deduction is allowed under section 2053(d). The application of this section may be illustrated by the following example:

Example. The decedent, a citizen of the United States, died July 1, 1955, leaving a gross estate of $1,200,000 consisting of: Shares of stock issued by United States corporations, valued at $600,000; bonds issued by the United States Government physically located in the United States, valued at $300,000; and shares of stock issued by a Country X corporation, valued at $300,000. Expenses, indebtedness, etc., amounted to $40,000. The decedent made specific bequests of $400,000 of the United States corporation stock to a niece and $100,000 of the Country X corporation stock to a nephew. The residue of his estate was left to charity. There is no death tax convention in existence between the United States and Country X. The Country X tax imposed was at a 50-percent rate on all beneficiaries. A State inheritance tax of $20,000 was imposed on the niece and nephew. The decedent did not provide in his will for the payment of the death taxes, and under local law the Federal estate tax is payable from the general estate, the same as administration expenses.

Distribution of the Estate

Gross estate   $1,200,000.00
Debts and charges$40,000.00
Bequest of U.S. corporation stock to niece400,000.00
Bequest of country X corporation stock to nephew100,000.00
Net Federal estate tax136,917.88
      676,917.88
   Residue before country X tax523,082.12
Country X succession tax on charity100,000.00
   Charitable deduction423,082.12
Taxable Estate and Federal Estate Tax
Gross estate   1,200,000.00
Debts and charges40,000.00
Deduction of foreign death tax under section 2053(d)100,000.00
Charitable deduction423,082.12
Exemption60,000.00
      623,082.12
   Taxable estate576,917.88
Gross estate tax172,621.26
Credit for State death taxes15,476.72
   Gross estate tax less credit for State death taxes157,144.54
Credit for foreign death taxes20,226.66
   Net Federal estate tax136,917.88
Credit for Foreign Death Taxes
country x tax
Succession tax on nephew:
Value of stock of country X corporation100,000
Tax (50% rate)$50,000
Succession tax on charity:
Value of stock of country X corporation200,000
Tax (50% rate)100,000
computation of exclusion under section 2014(b)
Value of situated in country X300,000
Value of property in respect of which a deduction is allowed under section 2053(d)200,000
Value of property situated within country X, subjected to tax, and included in gross estate as limited by section 2014(f)100,000

First Limitation, §28.2014-2(a)

$100,000 (factor C of the ratio stated at §20.2014-2(a)) ÷ $100,000 + $200,000 (factor D of the ratio stated at §20.2014 2(a) × $50,000 + $100,000) (factor B of the ratio stated at §20.2014-2(a)) = $50,000.00

Second Limitation, §28.2014-3(a)

$100,000 (factor G of the ratio stated at §20.2014-3(a)) (as limited by section 2014(f)) ÷ $1,200,000 − $423,082.12 (factor H of the ratio stated at §20.2014 3(a) × $172,621.26 − $15,476.72) (factor F of the ratio stated at §20.2014-3(a)) = $20,226.66Z

[T.D. 6600, 27 FR 4984, May 27, 1962]

§20.2015-1   Credit for death taxes on remainders.

(a) If the executor of an estate elects under section 6163(a) to postpone the time for payment of any portion of the Federal estate tax attributable to a reversionary or remainder interest in property, credit is allowed under sections 2011 and 2014 against that portion of the Federal estate tax for State death taxes and foreign death taxes attributable to the reversionary or remainder interest if the State death taxes or foreign death taxes are paid and if credit therefor is claimed either—

(1) Within the time provided for in sections 2011 and 2014, or

(2) Within the time for payment of the tax imposed by section 2001 or 2101 as postponed under section 6163(a) and as extended under section 6163(b) (on account of undue hardship) or, if the precedent interest terminated before July 5, 1958, within 60 days after the termination of the preceding interest or interests in the property.

The allowance of credit, however, is subject to the other limitations contained in sections 2011 and 2014 and, in the case of the estate of a decedent who was a nonresident not a citizen of the United States, in section 2102(b).

(b) In applying the rule stated in paragraph (a) of this section, credit for State death taxes or foreign death taxes paid within the time provided in sections 2011 and 2014 is applied first to the portion of the Federal estate tax payment of which is not postponed, and any excess is applied to the balance of the Federal estate tax. However, credit for State death taxes or foreign death taxes not paid within the time provided in section 2011 and 2014 is allowable only against the portion of the Federal estate tax attributable to the reversionary or remainder interest, and only for State or foreign death taxes attributable to that interest. If a State death tax or a foreign death tax is imposed upon both a reversionary or remainder interest and upon other property, without a definite apportionment of the tax, the amount of the tax deemed attributable to the reversionary or remainder interest is an amount which bears the same ratio to the total tax as the value of the reversionary or remainder interest bears to the value of the entire property with respect to which the tax was imposed. In applying this ratio, adjustments consistent with those required under paragraph (c) of §20.6163-1 must be made.

(c) The application of this section may be illustrated by the following examples:

Example (1). One-third of the Federal estate tax was attributable to a remainder interest in real property located in State Y, and two-thirds of the Federal estate tax was attributable to other property located in State X. The payment of the tax attributable to the remainder interest was postponed under the provisions of section 6163(a). The maximum credit allowable for State death taxes under the provisions of section 2011 is $12,000. Therefore, of the maximum credit allowable, $4,000 is attributable to the remainder interest and $8,000 is attributable to the other property. Within the 4-year period provided for in section 2011, inheritance tax in the amount of $9,000 was paid to State X in connection with the other property. With respect to this $9,000, $8,000 (the maximum amount allowable) is allowed as a credit against the Federal estate tax attributable to the other property, and $1,000 is allowed as a credit against the postponed tax. The life estate or other precedent interest expired after July 4, 1958. After the expiration of the 4-year period but before the expiration of the period of postponment elected under section 6163(a) and of the period of extension granted under section 6163(b) for payment of the tax, inheritance tax in the amount of $5,000 was paid to State Y in connection with the remainder interest. As the maximum credit allowable with respect to the remainder interest is $4,000 and $1,000 has already been allowed as a credit, an additional $3,000 will be credited against the Federal estate tax attributable to the remainder interest. It should be noted that if the life estate or other precedent interest had expired after the expiration of the 4-year period but before July 5, 1958, the same result would be reached only if the inheritance tax had been paid to State Y before the expiration of 60 days after the termination of the life estate or other precedent interest.
Example (2). The facts are the same as in example (1), except that within the 4-year period inheritance tax in the amount of $2,500 was paid to State Y with respect to the remainder interest and inheritance tax in the amount of $7,500 was paid to State X with respect to the other property. The amount of $8,000 is allowed as a credit against the Federal estate tax attributable to the other property and the amount of $2,000 is allowed as a credit against the postponed tax. The life estate or other precedent interest expired after July 4, 1958. After the expiration of the 4-year period but before the expiration of the period of postponement elected under section 6163(a) and of the period of extension granted under section 6163(b) for payment of the tax, inheritance tax in the amount of $5,000 was paid to State Y in connection with the remainder interest. As the maximum credit allowable with respect to the remainder interest is $4,000 and $2,000 already has been allowed as a credit, an additional $2,000 will be credited against the Federal estate tax attributable to the remainder interest. It should be noted that if the life estate or other precedent interest had expired after the expiration of the 4-year period but before July 5, 1958, the same result would be reached only if the inheritance tax had been paid to State Y before the expiration of 60 days after the termination of the life estate or other precedent interest.
Example (3). The facts are the same as in example (2), except that no payment was made to State Y within the 4-year period. The amount of $7,500 is allowed as a credit against the Federal estate tax attributable to the other property. After termination of the life interest additional credit will be allowed in the amount of $4,000 against the Federal estate tax attributable to the remainder interest. Since the payment of $5,000 was made to State Y following the expiration of the 4-year period, no part of the payment may be allowed as a credit against the Federal estate tax attributable to the other property.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6526, 26 FR 415, Jan. 19, 1961; T.D. 7296, 38 FR 34194, Dec. 12, 1973]

§20.2016-1   Recovery of death taxes claimed as credit.

In accordance with the provisions of section 2016, the executor (or any other person) receiving a refund of any State death taxes or foreign death taxes claimed as a credit under section 2011 or section 2014 shall notify the district director of the refund within 30 days of its receipt. The notice shall contain the following information:

(a) The name of the decedent;

(b) The date of the decedent's death;

(c) The property with respect to which the refund was made;

(d) The amount of the refund, exclusive of interest;

(e) The date of the refund; and

(f) The name and address of the person receiving the refund.

If the refund was in connection with foreign death taxes claimed as a credit under section 2014, the notice shall also contain a statement showing the amount of interest, if any, paid by the foreign country on the refund. Finally, the person filing the notice shall furnish the district director such additional information as he may request. Any Federal estate tax found to be due by reason of the refund is payable by the person or persons receiving it, upon notice and demand, even though the refund is received after the expiration of the period of limitations set forth in section 6501 (see section 6501(c)(5)). If the tax found to be due results from a refund of foreign death tax claimed as a credit under section 2014, such tax shall not bear interest for any period before the receipt of the refund, except to the extent that interest was paid by the foreign country on the refund.

Gross Estate

§20.2031-0   Table of contents.

This section lists the section headings and undesignated center headings that appear in the regulations under section 2031.

§20.2031-1   Definition of gross estate; valuation of property.

§20.2031-2   Valuation of stocks and bonds.

§20.2031-3   Valuation of interests in businesses.

§20.2031-4   Valuation of notes.

§20.2031-5   Valuation of cash on hand or on deposit.

§20.2031-6   Valuation of household and personal effects.

§20.2031-7   Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.

§20.2031-8   Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.

§20.2031-9   Valuation of other property.

Actuarial Tables Applicable Before May 1, 2009

§20.2031-7A   Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before May 1, 2009.

[T.D. 9448, 74 FR 21484, May 7, 2009, as amended at T.D. 9540, 76 FR 49612, Aug. 10, 2011]

§20.2031-1   Definition of gross estate; valuation of property.

(a) Definition of gross estate. Except as otherwise provided in this paragraph the value of the gross estate of a decedent who was a citizen or resident of the United States at the time of his death is the total value of the interests described in sections 2033 through 2044. The gross estate of a decedent who died before October 17, 1962, does not include real property situated outside the United States (as defined in paragraph (b)(1) of §20.0-1). Except as provided in paragraph (c) of this section (relating to the estates of decedents dying after October 16, 1962, and before July 1, 1964), in the case of a decedent dying after October 16, 1962, real property situated outside the United States which comes within the scope of sections 2033 through 2044 is included in the gross estate to the same extent as any other property coming within the scope of those sections. In arriving at the value of the gross estate the interests described in sections 2033 through 2044 are valued as described in this section, §§20.2031-2 through 20.2031-9 and §20.2032-1. The contents of sections 2033 through 2044 are, in general, as follows:

(1) Sections 2033 and 2034 are concerned mainly with interests in property passing through the decedent's probate estate. Section 2033 includes in the decedent's gross estate any interest that the decedent had in property at the time of his death. Section 2034 provides that any interest of the decedent's surviving spouse in the decedent's property, such as dower or curtesy, does not prevent the inclusion of such property in the decedent's gross estate.

(2) Sections 2035 through 2038 deal with interests in property transferred by the decedent during his life under such circumstances as to bring the interests within the decedent's gross estate. Section 2035 includes in the decedent's gross estate property transferred in contemplation of death, even though the decedent had not interest in, or control over, the property at the time of his death. Section 2036 provides for the inclusion of transferred property with respect to which the decedent retained the income or the power to designate who shall enjoy the income. Section 2037 includes in the decedent's gross estate certain transfers under which the beneficial enjoyment of the property could be obtained only by surviving the decedent. Section 2038 provides for the inclusion of transferred property if the decedent had at the time of his death the power to change the beneficial enjoyment of the property. It should be noted that there is considerable overlap in the application of sections 2036 through 2038 with respect to reserved powers, so that transferred property may be includible in the decedent's gross estate in varying degrees under more than one of those sections.

(3) Sections 2039 through 2042 deal with special kinds of property and powers. Sections 2039 and 2040 concern annuities and jointly held property respectively. Section 2041 deals with powers held by the decedent over the beneficial enjoyment of property not originating with the decedent. Section 2042 concerns insurance under policies on the life of the decedent.

(4) Section 2043 concerns the sufficiency of consideration for transfers made by the decedent during his life. This has a bearing on the amount to be included in the decedent's gross estate under sections 2035 through 2038, and 2041. Section 2044 deals with retroactivity.

(b) Valuation of property in general. The value of every item of property includible in a decedent's gross estate under sections 2031 through 2044 is its fair market value at the time of the decedent's death, except that if the executor elects the alternate valuation method under section 2032, it is the fair market value thereof at the date, and with the adjustments, prescribed in that section. The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate. Thus, in the case of an item of property includible in the decedent's gross estate, which is generally obtained by the public in the retail market, the fair market value of such an item of property is the price at which the item or a comparable item would be sold at retail. For example, the fair market value of an automobile (an article generally obtained by the public in the retail market) includible in the decedent's gross estate is the price for which an automobile of the same or approximately the same description, make, model, age, condition, etc., could be purchased by a member of the general public and not the price for which the particular automobile of the decedent would be purchased by a dealer in used automobiles. Examples of items of property which are generally sold to the public at retail may be found in §§20.2031-6 and 20.2031-8. The value is generally to be determined by ascertaining as a basis the fair market value as of the applicable valuation date of each unit of property. For example, in the case of shares of stock or bonds, such unit of property is generally a share of stock or a bond. Livestock, farm machinery, harvested and growing crops must generally be itemized and the value of each item separately returned. Property shall not be returned at the value at which it is assessed for local tax purposes unless that value represents the fair market value as of the applicable valuation date. All relevant facts and elements of value as of the applicable valuation date shall be considered in every case. The value of items of property which were held by the decedent for sale in the course of a business generally should be reflected in the value of the business. For valuation of interests in businesses, see §20.2031-3. See §20.2031-2 and §§20.2031-4 through 20.2031-8 for further information concerning the valuation of other particular kinds of property. For certain circumstances under which the sale of an item of property at a price below its fair market value may result in a deduction for the estate, see paragraph (d)(2) of §20.2053-3.

(c) Real property situated outside the United States; gross estate of decedent dying after October 16, 1962, and before July 1, 1964—(1) In general. In the case of decedent dying after October 16, 1962, and before July 1, 1964, the value of real property situated outside the United States (as defined in paragraph (b)(1) of §20.0-1) is not included in the gross estate of the decedent—

(i) Under section 2033, 2034, 2035(a), 2036(a), 2037(a), or 2038(a) to the extent the real property, or the decedent's interest in it, was acquired by the decedent before February 1, 1962;

(ii) Under section 2040 to the extent such property or interest was acquired by the decedent before February 1, 1962, or was held by the decedent and the survivor in a joint tenancy or tenancy by the entirety before February 1, 1962; or

(iii) Under section 2041(a) to the extent that before February 1, 1962, such property or interest was subject to a general power of appointment (as defined in section 2041) possessed by the decedent.

(2) Certain property treated as acquired before February 1, 1962. For purposes of this paragraph real property situated outside the United States (including property held by the decedent and the survivor in a joint tenancy or tenancy by the entirety), or an interest in such property or a general power of appointment in respect of such property, which was acquired by the decedent after January 31, 1962, is treated as acquired by the decedent before February 1, 1962, if

(i) Such property, interest, or power was acquired by the decedent by gift within the meaning of section 2511, or from a prior decedent by devise or inheritance, or by reason of death, form of ownership, or other conditions (including the exercise or nonexercise of a power of appointment); and

(ii) Before February 1, 1962, the donor or prior decedent had acquired the property or his interest therein or had possessed a power of appointment in respect thereof.

(3) Certain property treated as acquired after January 31, 1962. For purposes of this paragraph that portion of capital additions or improvements made after January 31, 1962, to real property situated outside the United States is, to the extent that it materially increases the value of the property, treated as real property acquired after January 31, 1962. Accordingly, the gross estate may include the value of improvements on unimproved real property, such as office buildings, factories, houses, fences, drainage ditches, and other capital items, and the value of capital additions and improvements to existing improvements, placed on real property after January 31, 1962, whether or not the value of such real property or existing improvements is included in the gross estate.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6684, 28 FR 11408, Oct. 24, 1963; T.D. 6826, 30 FR 7708, June 15, 1965]

§20.2031-2   Valuation of stocks and bonds.

(a) In general. The value of stocks and bonds is the fair market value per share or bond on the applicable valuation date.

(b) Based on selling prices. (1) In general, if there is a market for stocks or bonds, on a stock exchange, in an over-the-counter market, or otherwise, the mean between the highest and lowest quoted selling prices on the valuation date is the fair market value per share or bond. If there were no sales on the valuation date but there were sales on dates within a reasonable period both before and after the valuation date, the fair market value is determined by taking a weighted average of the means between the highest and lowest sales on the nearest date before and the nearest date after the valuation date. The average is to be weighted inversely by the respective numbers of trading days between the selling dates and the valuation date. If the stocks or bonds are listed on more than one exchange, the records of the exchange where the stocks or bonds are principally dealt in should be employed if such records are available in a generally available listing or publication of general circulation. In the event that such records are not so available and such stocks or bonds are listed on a composite listing of combined exchanges available in a generally available listing or publication of general circulation, the records of such combined exchanges should be employed. In valuing listed securities, the executor should be careful to consult accurate records to obtain values as of the applicable valuation date. If quotations of unlisted securities are obtained from brokers, or evidence as to their sale is obtained from officers of the issuing companies, copies of the letters furnishing such quotations or evidence of sale should be attached to the return.

(2) If it is established with respect to bonds for which there is a market on a stock exchange, that the highest and lowest selling prices are not available for the valuation date in a generally available listing or publication of general circulation but that closing selling prices are so available, the fair market value per bond is the mean between the quoted closing selling price on the valuation date and the quoted closing selling price on the trading day before the valuation date. If there were no sales on the trading day before the valuation date but there were sales on a date within a reasonable period before the valuation date, the fair market value is determined by taking a weighted average of the quoted closing selling price on the valuation date and the quoted closing selling price on the nearest date before the valuation date. The closing selling price for the valuation date is to be weighted by the number of trading days between the previous selling date and the valuation date. If there were no sales within a reasonable period before the valuation date but there were sales on the valuation date, the fair market value is the closing selling price on such valuation date. If there were no sales on the valuation date but there were sales on dates within a reasonable period both before and after the valuation date, the fair market value is determined by taking a weighted average of the quoted closing selling prices on the nearest date before and the nearest date after the valuation date. The average is to be weighted inversely by the respective numbers of trading days between the selling dates and the valuation date. If the bonds are listed on more than one exchange, the records of the exchange where the bonds are principally dealt in should be employed. In valuing listed securities, the executor should be careful to consult accurate records to obtain values as of the applicable valuation date.

(3) The application of this paragraph may be illustrated by the following examples:

Example (1). Assume that sales of X Company common stock nearest the valuation date (Friday, June 15) occurred two trading days before (Wednesday, June 13) and three trading days after (Wednesday, June 20) and on these days the mean sale prices per share were $10 and $15, respectively. The price of $12 is taken as representing the fair market value of a share of X Company common stock as of the valuation date eCFR graphic ec15no91.217.gif

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Example (2). Assume the same facts as in example (1) except that the mean sale prices per share on June 13, and June 20 were $15 and $10, respectively. The price of $13 is taken as representing the fair market value of a share of X Company common stock as of the valuation date eCFR graphic er13ja06.003.gif

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Example (3). Assume the decedent died on Sunday, October 7, and that Saturday and Sunday were not trading days. If sales of X Company common stock occurred on Friday, October 5, at mean sale prices per share of $20 and on Monday, October 8, at mean sale prices per share of $23, the price of $21.50 is taken as representing the fair market value of a share of X Company common stock as of the valuation date eCFR graphic ec16oc91.008.gif

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Example (4). Assume that on the valuation date (Tuesday, April 3, 1973) the closing selling price of a listed bond was $25 per bond and that the highest and lowest selling prices are not available in a generally available listing or publication of general circulation for that date. Assume further, that the closing selling price of the same listed bond was $21 per bond on the day before the valuation date (Monday, April 2, 1973). Thus, under paragraph (b)(2) of this section the price of $23 is taken as representing the fair market value per bond as of the valuation date eCFR graphic ec16oc91.009.gif

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Example (5). Assume the same facts as in example (4) except that there were no sales on the day before the valuation date. Assume further, that there were sales on Thursday, March 29, 1973, and that the closing selling price on that day was $23. The price of $24.50 is taken as representing the fair market value per bond as of the valuation date eCFR graphic ec16oc91.010.gif

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Example (6). Assume that no bonds were traded on the valuation date (Friday, April 20). Assume further, that sales of bonds nearest the valuation date occurred two trading days before (Wednesday, April 18) and three trading days after (Wednesday, April 25) the valuation date and that on these two days the closing selling prices per bond were $29 and $22, respectively. The highest and lowest selling prices are not available for these dates in a generally available listing or publication of general circulation. Thus, under paragraph (b)(2) of this section, the price of $26.20 is taken as representing the fair market value of a bond as of the valuation date eCFR graphic ec16oc91.011.gif

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(c) Based on bid and asked prices. If the provisions of paragraph (b) of this section are inapplicable because actual sales are not available during a reasonable period beginning before and ending after the valuation date, the fair market value may be determined by taking the mean between the bona fide bid and asked prices on the valuation date, or if none, by taking a weighted average of the means between the bona fide bid and asked prices on the nearest trading date before and the nearest trading date after the valuation date, if both such nearest dates are within a reasonable period. The average is to be determined in the manner described in paragraph (b) of this section.

(d) Based on incomplete selling prices or bid and asked prices. If the provisions of paragraphs (b) and (c) of this section are inapplicable because no actual sale prices or bona fide bid and asked prices are available on a date within a reasonable period before the valuation date, but such prices are available on a date within a reasonable period after the valuation date, or vice versa, then the mean between the highest and lowest available sale prices or bid and asked prices may be taken as the value.

(e) Where selling prices or bid and asked prices do not reflect fair market value. If it is established that the value of any bond or share of stock determined on the basis of selling or bid and asked prices as provided under paragraphs (b), (c), and (d) of this section does not reflect the fair market value thereof, then some reasonable modification of that basis or other relevant facts and elements of value are considered in determining the fair market value. Where sales at or near the date of death are few or of a sporadic nature, such sales alone may not indicate fair market value. In certain exceptional cases, the size of the block of stock to be valued in relation to the number of shares changing hands in sales may be relevant in determining whether selling prices reflect the fair market value of the block of stock to be valued. If the executor can show that the block of stock to be valued is so large in relation to the actual sales on the existing market that it could not be liquidated in a reasonable time without depressing the market, the price at which the block could be sold as such outside the usual market, as through an underwriter, may be a more accurate indication of value than market quotations. Complete data in support of any allowance claimed due to the size of the block of stock being valued shall be submitted with the return. On the other hand, if the block of stock to be valued represents a controlling interest, either actual or effective, in a going business, the price at which other lots change hands may have little relation to its true value.

(f) Where selling prices or bid and asked prices are unavailable. If the provisions of paragraphs (b), (c), and (d) of this section are inapplicable because actual sale prices and bona fide bid and asked prices are lacking, then the fair market value is to be determined by taking the following factors into consideration:

(1) In the case of corporate or other bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors; and

(2) In the case of shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors.

Some of the “other relevant factors” referred to in subparagraphs (1) and (2) of this paragraph are: The good will of the business; the economic outlook in the particular industry; the company's position in the industry and its management; the degree of control of the business represented by the block of stock to be valued; and the values of securities of corporations engaged in the same or similar lines of business which are listed on a stock exchange. However, the weight to be accorded such comparisons or any other evidentiary factors considered in the determination of a value depends upon the facts of each case. In addition to the relevant factors described above, consideration shall also be given to nonoperating assets, including proceeds of life insurance policies payable to or for the benefit of the company, to the extent such nonoperating assets have not been taken into account in the determination of net worth, prospective earning power and dividend-earning capacity. Complete financial and other data upon which the valuation is based should be submitted with the return, including copies of reports of any examinations of the company made by accountants, engineers, or any technical experts as of or near the applicable valuation date.

(g) Pledged securities. The full value of securities pledged to secure an indebtedness of the decedent is included in the gross estate. If the decedent had a trading account with a broker, all securities belonging to the decedent and held by the broker at the date of death must be included at their fair market value as of the applicable valuation date. Securities purchased on margin for the decedent's account and held by a broker must also be returned at their fair market value as of the applicable valuation date. The amount of the decedent's indebtedness to a broker or other person with whom securities were pledged is allowed as a deduction from the gross estate in accordance with the provisions of §20.2053-1 or §20.2106-1 (for estates of nonresidents not citizens).

(h) Securities subject to an option or contract to purchase. Another person may hold an option or a contract to purchase securities owned by a decedent at the time of his death. The effect, if any, that is given to the option or contract price in determining the value of the securities for estate tax purposes depends upon the circumstances of the particular case. Little weight will be accorded a price contained in an option or contract under which the decedent is free to dispose of the underlying securities at any price he chooses during his lifetime. Such is the effect, for example, of an agreement on the part of a shareholder to purchase whatever shares of stock the decedent may own at the time of his death. Even if the decedent is not free to dispose of the underlying securities at other than the option or contract price, such price will be disregarded in determining the value of the securities unless it is determined under the circumstances of the particular case that the agreement represents a bona fide business arrangement and not a device to pass the decedent's shares to the natural objects of his bounty for less than an adequate and full consideration in money or money's worth. See section 2703 and the regulations at §25.2703 of this chapter for special rules involving options and agreements (including contracts to purchase) entered into (or substantially modified after) October 8, 1990.

(i) Stock sold “ex-dividend.” In any case where a dividend is declared on a share of stock before the decedent's death but payable to stock holders of record on a date after his death and the stock is selling “ex-dividend” on the date of the decedent's death, the amount of the dividend is added to the ex-dividend quotation in determining the fair market value of the stock as of the date of the decedent's death.

(j) Application of chapter 14. See section 2701 and the regulations at §25.2701 of this chapter for special rules for valuing the transfer of an interest in a corporation and for the treatment of unpaid qualified payments at the death of the transferor or an applicable family member. See section 2704(b) and the regulations at §25.2704-2 of this chapter for special valuation rules involving certain restrictions on liquidation rights created after October 8, 1990.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7312, 39 FR 14948, Apr. 29, 1974; T.D. 7327, 39 FR 35354, Oct. 1, 1974; T.D. 7432, 41 FR 38769, Sept. 13, 1976; T.D. 8395, 57 FR 4254, Feb. 4, 1992]

§20.2031-3   Valuation of interests in businesses.

The fair market value of any interest of a decedent in a business, whether a partnership or a proprietorship, is the net amount which a willing purchaser whether an individual or a corporation, would pay for the interest to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The net value is determined on the basis of all relevant factors including—

(a) A fair appraisal as of the applicable valuation date of all the assets of the business, tangible and intangible, including good will;

(b) The demonstrated earning capacity of the business; and

(c) The other factors set forth in paragraphs (f) and (h) of §20.2031-2 relating to the valuation of corporate stock, to the extent applicable.

Special attention should be given to determining an adequate value of the good will of the business in all cases in which the decedent has not agreed, for an adequate and full consideration in money or money's worth, that his interest passes at his death to, for example, his surviving partner or partners. Complete financial and other data upon which the valuation is based should be submitted with the return, including copies of reports of examinations of the business made by accountants, engineers, or any technical experts as of or near the applicable valuation date. See section 2701 and the regulations at §25.2701 of this chapter for special rules for valuing the transfer of an interest in a partnership and for the treatment of unpaid qualified payments at the death of the transferor or an applicable family member. See section 2703 and the regulations at §25.2703 of this chapter for special rules involving options and agreements (including contracts to purchase) entered into (or substantially modified after) October 8, 1990. See section 2704(b) and the regulations at §25.2704-2 of this chapter for special valuation rules involving certain restrictions on liquidation rights created after October 8, 1990.

[T.D. 8395, 57 FR 4254, Feb. 4, 1992]

§20.2031-4   Valuation of notes.

The fair market value of notes, secured or unsecured, is presumed to be the amount of unpaid principal, plus interest accrued to the date of death, unless the executor establishes that the value is lower or that the notes are worthless. However, items of interest shall be separately stated on the estate tax return. If not returned at face value, plus accrued interest, satisfactory evidence must be submitted that the note is worth less than the unpaid amount (because of the interest rate, date of maturity, or other cause), or that the note is uncollectible, either in whole or in part (by reason of the insolvency of the party or parties liable, or for other cause), and that any property pledged or mortgaged as security is insufficient to satisfy the obligation.

§20.2031-5   Valuation of cash on hand or on deposit.

The amount of cash belonging to the decedent at the date of his death, whether in his possession or in the possession of another, or deposited with a bank, is included in the decedent's gross estate. If bank checks outstanding at the time of the decedent's death and given in discharge of bona fide legal obligations of the decedent incurred for an adequate and full consideration in money or money's worth are subsequently honored by the bank and charged to the decedent's account, the balance remaining in the account may be returned, but only if the obligations are not claimed as deductions from the gross estate.

§20.2031-6   Valuation of household and personal effects.

(a) General rule. The fair market value of the decedent's household and personal effects is the price which a willing buyer would pay to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. A room by room itemization of household and personal effects is desirable. All the articles should be named specifically, except that a number of articles contained in the same room, none of which has a value in excess of $100, may be grouped. A separate value should be given for each article named. In lieu of an itemized list, the executor may furnish a written statement, containing a declaration that it is made under penalties of perjury, setting forth the aggregate value as appraised by a competent appraiser or appraisers of recognized standing and ability, or by a dealer or dealers in the class of personalty involved.

(b) Special rule in cases involving a substantial amount of valuable articles. Notwithstanding the provisions of paragraph (a) of this section, if there are included among the household and personal effects articles having marked artistic or intrinsic value of a total value in excess of $3,000 (e.g., jewelry, furs, silverware, paintings, etchings, engravings, antiques, books, statuary, vases, oriental rugs, coin or stamp collections), the appraisal of an expert or experts, under oath, shall be filed with the return. The appraisal shall be accompanied by a written statement of the executor containing a declaration that it is made under the penalties of perjury as to the completeness of the itemized list of such property and as to the disinterested character and the qualifications of the appraiser or appraisers.

(c) Disposition of household effects prior to investigation. If it is desired to effect distribution or sale of any portion of the household or personal effects of the decedent in advance of an investigation by an officer of the Internal Revenue Service, information to that effect shall be given to the district director. The statement to the district director shall be accompanied by an appraisal of such property, under oath, and by a written statement of the executor, containing a declaration that it is made under the penalties of perjury, regarding the completeness of the list of such property and the qualifications of the appraiser, as heretofore described. If a personal inspection by an officer of the Internal Revenue Service is not deemed necessary, the executor will be so advised. This procedure is designed to facilitate disposition of such property and to obviate future expense and inconvenience to the estate by affording the district director an opportunity to make an investigation should one be deemed necessary prior to sale or distribution.

(d) Additional rules if an appraisal involved. If, pursuant to paragraphs (a), (b), and (c) of this section, expert appraisers are employed, care should be taken to see that they are reputable and of recognized competency to appraise the particular class of property involved. In the appraisal, books in sets by standard authors should be listed in separate groups. In listing paintings having artistic value, the size, subject, and artist's name should be stated. In the case of oriental rugs, the size, make, and general condition should be given. Sets of silverware should be listed in separate groups. Groups or individuals pieces of silverware should be weighed and the weights given in troy ounces. In arriving at the value of silverware, the appraisers should take into consideration its antiquity, utility, desirability, condition, and obsolescence.

§20.2031-7   Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.

(a) In general. Except as otherwise provided in paragraph (b) of this section and §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests for estates of decedents is the present value of such interests, determined under paragraph (d) of this section. The regulations in this and in related sections provide tables with standard actuarial factors and examples that illustrate how to use the tables to compute the present value of ordinary annuity, life, and remainder interests in property. These sections also refer to standard and special actuarial factors that may be necessary to compute the present value of similar interests in more unusual fact situations.

(b) Commercial annuities and insurance contracts. The value of annuities issued by companies regularly engaged in their sale, and of insurance policies on the lives of persons other than the decedent, is determined under §20.2031-8. See §20.2042-1 with respect to insurance policies on the decedent's life.

(c) Actuarial valuations. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is before May 1, 2009, is determined under the following sections:

Valuation date Applicable regulations
AfterBefore
01-01-5220.2031-7A(a).
12-31-5101-01-7120.2031-7A(b).
12-31-7012-01-8320.2031-7A(c).
11-30-8305-01-8920.2031-7A(d).
04-30-8905-01-9920.2031-7A(e).
04-30-9905-01-0920.2031-7A(f).

(d) Actuarial valuations on or after May 1, 2009—(1) In general. Except as otherwise provided in paragraph (b) of this section and §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date for the gross estate of the decedent is on or after May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests is the present value determined by use of standard or special section 7520 actuarial factors. These factors are derived by using the appropriate section 7520 interest rate and, if applicable, the mortality component for the valuation date of the interest that is being valued. For purposes of the computations described in this section, the age of an individual is the age of that individual at the individual's nearest birthday. See §§20.7520-1 through 20.7520-4.

(2) Specific interests—(i) Charitable remainder trusts. The fair market value of a remainder interest in a pooled income fund, as defined in §1.642(c)-5 of this chapter, is its value determined under §1.642(c)-6(e). The fair market value of a remainder interest in a charitable remainder annuity trust, as defined in §1.664-2(a), is the present value determined under §1.664-2(c). The fair market value of a remainder interest in a charitable remainder unitrust, as defined in §1.664-3, is its present value determined under §1.664-4(e). The fair market value of a life interest or term of years in a charitable remainder unitrust is the fair market value of the property as of the date of valuation less the fair market value of the remainder interest on that date determined under §1.664-4(e)(4) and (5).

(ii) Ordinary remainder and reversionary interests. If the interest to be valued is to take effect after a definite number of years or after the death of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or in Table S (for one measuring life), as the case may be. Table B is contained in paragraph (d)(6) of this section and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is contained in paragraph (d)(7) of this section and in Internal Revenue Service Publication 1457. See §20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.

(iii) Ordinary term-of-years and life interests. If the interest to be valued is the right of a person to receive the income of certain property, or to use certain nonincome-producing property, for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in paragraph (d)(6) of this section or Table S in paragraph (d)(7) of this section (or in §20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate and the term of years or the life) in Table B (for a term of years) in paragraph (d)(6) of this section or in Table S (for the life of one individual) in paragraph (d)(7) of this section, as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, see paragraph (d)(4) of this section.

(iv) Annuities. (A) If the interest to be valued is the right of a person to receive an annuity that is payable at the end of each year for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the aggregate amount payable annually by the appropriate annuity actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Publication 1457 includes actuarial factors for a remainder interest in Table B (after an annuity payable for a term of years) and in Table S (after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in paragraph (d)(6) of this section or Table S in paragraph (d)(7) of this section (or in §20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, a required annuity factor for a term of years or for one life may be mathematically derived. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in paragraph (d)(6) of this section or in Table S (in the case of a one-life annuity when the valuation date is on or after May 1, 2009) in paragraph (d)(7) of this section, as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number.

(B) If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods, the product obtained by multiplying the annuity factor by the aggregate amount payable annually is then multiplied by the applicable adjustment factor as contained in Table K in paragraph (d)(6) of this section for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:

Example. At the time of the decedent's death, the survivor/annuitant, age 72, is entitled to receive an annuity of $15,000 a year for life payable in equal monthly installments at the end of each period. The section 7520 rate for the month in which the decedent died is 5.6 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 5.6 percent for an individual aged 72 is .53243. By converting the remainder factor to an annuity factor, as described above, the annuity factor at 5.6 percent for an individual aged 72 is 8.3495 (1.000000 minus .53243, divided by .056). Under Table K in paragraph (d)(6) of this section, the adjustment factor under the column for payments made at the end of each monthly period at the rate of 5.6 percent is 1.0254. The aggregate annual amount, $15,000, is multiplied by the factor 8.3495 and the product is multiplied by 1.0254. The present value of the annuity at the date of the decedent's death is, therefore, $128,423.66 ($15,000 × 8.3495 × 1.0254).

(C) If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for a term of years, the value of the annuity is computed by multiplying the aggregate amount payable annually by the annuity factor described in paragraph (d)(2)(iv)(A) of this section, and the product so obtained is then multiplied by the adjustment factor in Table J in paragraph (d)(6) of this section at the appropriate interest rate component for payments made at the beginning of specified periods. If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for one or more lives, the value of the annuity is the sum of the first payment plus the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in this paragraph (d)(2)(iv).

(v) Annuity and unitrust interests for a term of years or until the prior death of an individual. See §25.2512-5(d)(2)(v) of this chapter for examples explaining how to compute the present value of an annuity or unitrust interest that is payable until the earlier of the lapse of a specific number of years or the death of an individual.

(3) Transitional rule. (i) If a decedent dies on or after May 1, 2009, and if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the decedent's property could not be changed, and the decedent dies without having regained competency to dispose of the decedent's property or dies within 90 days of the date on which the decedent first regains competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions included in the gross estate of the decedent is their present value determined either under this section or under the corresponding section applicable at the time the decedent became mentally incompetent, at the option of the decedent's executor. For examples, see §20.2031-7A(d).

(ii) If a decedent dies on or after May 1, 2009, and before July 1, 2009, the fair market value of annuities, life estates, remainders, and reversions based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§20.7520-1(b) and 20.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (d)(7) of this section or §20.2031-7A(f)(4), at the option of the decedent's executor.

(iii) For purposes of paragraphs (d)(3)(i) and (d)(3)(ii) of this section, where the decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (d)(7) of this section or §20.2031-7A(f)(4), the decedent's executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables.

(4) Publications and actuarial computations by the Internal Revenue Service. Many standard actuarial factors not included in paragraph (d)(6) or (d)(7) of this section are included in Internal Revenue Service Publication 1457, “Actuarial Valuations Version 3A” (2009). Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. This publication is available, at no charge, electronically via the Internal Revenue Service Internet site at http://www.irs.gov. If a special factor is required in the case of an actual decedent, the Internal Revenue Service may furnish the factor to the executor upon a request for a ruling. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the decedent's death, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.

(5) Examples. The provisions of this section are illustrated by the following examples:

Example 1. Remainder payable at an individual's death, The decedent, or the decedent's estate, was entitled to receive certain property worth $50,000 upon the death of A, to whom the income was bequeathed for life. At the time of the decedent's death, A was 47 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 47, the number of years nearest A's actual age at the decedent's death, is .18672. The present value of the remainder interest at the date of the decedent's death is, therefore, $9,336.00 ($50,000 × .18672).
Example 2. Income payable for an individual's life, A's parent bequeathed an income interest in property to A for life, with the remainder interest passing to B at A's death. At the time of the parent's death, the value of the property was $50,000 and A was 30 years and 10 months old. The section 7520 rate at the time of the parent's death was 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 31, the number of years closest to A's age at the decedent's death, is .08697. Converting this remainder factor to an income factor, as described in paragraph (d)(2)(iii) of this section, the factor for determining the present value of an income interest for the life of a person aged 31 is .91303. The present value of A's interest at the time of the parent's death is, therefore, $45,651.50 ($50,000 × .91303).
Example 3. Annuity payable for an individual's life, A purchased an annuity for the benefit of both A and B. Under the terms of the annuity contract, at A's death, a survivor annuity of $10,000 per year payable in equal semiannual installments made at the end of each interval is payable to B for life. At A's death, B was 45 years and 7 months old. Also, at A's death, the section 7520 rate was 4.8 percent. Under Table S in paragraph (d)(7) of this section, the factor at 4.8 percent for determining the present value of the remainder interest at the death of a person age 46 (the number of years nearest B's actual age) is .24774. By converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity payable until the death of a person age 46 is 15.6721 (1.000000 minus .24774, divided by .048). The adjustment factor from Table K in paragraph (d)(6) of this section at an interest rate of 4.8 percent for semiannual annuity payments made at the end of the period is 1.0119. The present value of the annuity at the date of A's death is, therefore, $158,585.98 ($10,000 × 15.6721 × 1.0119).
Example 4. Annuity payable for a term of years, The decedent, or the decedent's estate, was entitled to receive an annuity of $10,000 per year payable in equal quarterly installments at the end of each quarter throughout a term certain. At the time of the decedent's death, the section 7520 rate was 9.8 percent. A quarterly payment had been made immediately prior to the decedent's death and payments were to continue for 5 more years. Under Table B in paragraph (d)(6) of this section for the interest rate of 9.8 percent, the factor for the present value of a remainder interest due after a term of 5 years is .626597. Converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity for a term of 5 years is 3.8102 (1.000000 minus .626597, divided by .098). The adjustment factor from Table K in paragraph (d)(6) of this section at an interest rate of 9.8 percent for quarterly annuity payments made at the end of the period is 1.0360. The present value of the annuity is, therefore, $39,473.67 ($10,000 × 3.8102 × 1.0360).

(6) Actuarial Table B, Table J, and Table K where the valuation date is after April 30, 1989. Except as provided in §20.7520-3(b) (pertaining to certain limitations on prescribed tables), for determination of the present value of an interest that is dependent on a term of years, the tables in this paragraph (d)(6) must be used in the application of the provisions of this section when the section 7520 interest rate component is between 4.2 and 14 percent.

Table B—Term Certain Remainder Factors Applicable After April 30, 1989

YearsInterest rate
4.2%4.4%4.6%4.8%5.0%5.2%5.4%5.6%5.8%6.0%
1.959693.957854.956023.954198.952381.950570.948767.946970.945180.943396
2.921010.917485.913980.910495.907029.903584.900158.896752.893364.889996
3.883887.878817.873786.868793.863838.858920.854040.849197.844390.839619
4.848260.841779.835359.829001.822702.816464.810285.804163.798100.792094
5.814069.806302.798623.791031.783526.776106.768771.761518.754348.747258
6.781257.772320.763501.754801.746215.737744.729384.721135.712994.704961
7.749766.739770.729925.720230.710681.701277.692015.682893.673908.665057
8.719545.708592.697825.687242.676839.666613.656561.646679.636964.627412
9.690543.678728.667137.655765.644609.633663.622923.612385.602045.591898
10.662709.650122.637798.625730.613913.602341.591009.579910.569041.558395
11.635997.622722.609750.597071.584679.572568.560729.549157.537846.526788
12.610362.596477.582935.569724.556837.544266.532001.520035.508361.496969
13.585760.571339.557299.543630.530321.517363.504745.492458.480492.468839
14.562150.547259.532790.518731.505068.491790.478885.466343.454151.442301
15.539491.524195.509360.494972.481017.467481.454350.441612.429255.417265
16.517746.502102.486960.472302.458112.444374.431072.418194.405723.393646
17.496877.480941.465545.450670.436297.422408.408987.396017.383481.371364
18.476849.460671.445071.430028.415521.401529.388033.375016.362458.350344
19.457629.441256.425498.410332.395734.381681.368153.355129.342588.330513
20.439183.422659.406786.391538.376889.362815.349291.336296.323807.311805
21.421481.404846.388897.373605.358942.344881.331396.318462.306056.294155
22.404492.387783.371794.356494.341850.327834.314417.301574.289278.277505
23.388188.371440.355444.340166.325571.311629.298309.285581.273420.261797
24.372542.355785.339813.324586.310068.296225.283025.270437.258431.246979
25.357526.340791.324869.309719.295303.281583.268525.256096.244263.232999
26.343115.326428.310582.295533.281241.267664.254768.242515.230873.219810
27.329285.312670.296923.281998.267848.254434.241715.229654.218216.207368
28.316012.299493.283866.269082.255094.241857.229331.217475.206253.195630
29.303275.286870.271382.256757.242946.229902.217582.205943.194947.184557
30.291051.274780.259447.244997.231377.218538.206434.195021.184260.174110
31.279319.263199.248038.233776.220359.207736.195858.184679.174158.164255
32.268061.252106.237130.223069.209866.197468.185823.174886.164611.154957
33.257256.241481.226702.212852.199873.187707.176303.165612.155587.146186
34.246887.231304.216732.203103.190355.178429.167270.156829.147058.137912
35.236935.221556.207201.193801.181290.169609.158701.148512.138996.130105
36.227385.212218.198089.184924.172657.161225.150570.140637.131376.122741
37.218220.203274.189377.176454.164436.153256.142856.133179.124174.115793
38.209424.194707.181049.168373.156605.145681.135537.126116.117367.109239
39.200983.186501.173087.160661.149148.138480.128593.119428.110933.103056
40.192882.178641.165475.153302.142046.131635.122004.113095.104851.097222
41.185107.171112.158198.146281.135282.125128.115754.107098.099103.091719
42.177646.163900.151241.139581.128840.118943.109823.101418.093670.086527
43.170486.156992.144590.133188.122704.113064.104197.096040.088535.081630
44.163614.150376.138231.127088.116861.107475.098858.090947.083682.077009
45.157019.144038.132152.121267.111297.102163.093793.086124.079094.072650
46.150690.137968.126340.115713.105997.097113.088988.081557.074758.068538
47.144616.132153.120784.110413.100949.092312.084429.077232.070660.064658
48.138787.126583.115473.105356.096142.087749.080103.073136.066786.060998
49.133193.121248.110395.100530.091564.083412.075999.069258.063125.057546
50.127824.116138.105540.095926.087204.079289.072106.065585.059665.054288
51.122672.111243.100898.091532.083051.075370.068411.062107.056394.051215
52.117728.106555.096461.087340.079096.071644.064907.058813.053302.048316
53.112982.102064.092219.083340.075330.068103.061581.055695.050380.045582
54.108428.097763.088164.079523.071743.064737.058426.052741.047618.043001
55.104058.093642.084286.075880.068326.061537.055433.049944.045008.040567
56.099864.089696.080580.072405.065073.058495.052593.047296.042541.038271
57.095839.085916.077036.069089.061974.055604.049898.044787.040208.036105
58.091976.082295.073648.065924.059023.052855.047342.042412.038004.034061
59.088268.078826.070409.062905.056212.050243.044916.040163.035921.032133
60.084710.075504.067313.060024.053536.047759.042615.038033.033952.030314

Table B—Term Certain Remainder Factors Applicable After April 30, 1989

YearsInterest rate
6.2%6.4%6.6%6.8%7.0%7.2%7.4%7.6%7.8%8.0%
1.941620.939850.938086.936330.934579.932836.931099.929368.927644.925926
2.886647.883317.880006.876713.873439.870183.866945.863725.860523.857339
3.834885.830185.825521.820892.816298.811738.807211.802718.798259.793832
4.786144.780249.774410.768626.762895.757218.751593.746021.740500.735030
5.740248.733317.726464.719687.712986.706360.699808.693328.686920.680583
6.697032.689208.681486.673864.666342.658918.651590.644357.637217.630170
7.656339.647752.639292.630959.622750.614662.606694.598845.591111.583490
8.618022.608789.599711.590786.582009.573379.564892.556547.548340.540269
9.581942.572170.562581.553170.543934.534868.525971.517237.508664.500249
10.547968.537754.527750.517950.508349.498944.489731.480704.471859.463193
11.515977.505408.495075.484972.475093.465433.455987.446750.437717.428883
12.485854.475007.464423.454093.444012.434173.424569.415196.406046.397114
13.457490.446436.435669.425181.414964.405012.395316.385870.376666.367698
14.430781.419582.408695.398109.387817.377810.368078.358615.349412.340461
15.405632.394344.383391.372762.362446.352434.342717.333285.324130.315242
16.381951.370624.359654.349028.338735.328763.319103.309745.300677.291890
17.359653.348331.337386.326805.316574.306682.297117.287867.278921.270269
18.338656.327379.316498.305997.295864.286084.276645.267534.258739.250249
19.318885.307687.296902.286514.276508.266870.257584.248638.240018.231712
20.300268.289179.278520.268272.258419.248946.239836.231076.222651.214548
21.282739.271785.261276.251191.241513.232225.223311.214755.206541.198656
22.266232.255437.245099.235197.225713.216628.207925.199586.191596.183941
23.250689.240073.229924.220222.210947.202078.193598.185489.177733.170315
24.236054.225632.215689.206201.197147.188506.180259.172387.164873.157699
25.222273.212060.202334.193072.184249.175845.167839.160211.152943.146018
26.209297.199305.189807.180779.172195.164035.156275.148895.141877.135202
27.197078.187317.178056.169269.160930.153017.145507.138379.131611.125187
28.185572.176049.167031.158491.150402.142740.135482.128605.122088.115914
29.174739.165460.156690.148400.140563.133153.126147.119521.113255.107328
30.164537.155507.146989.138951.131367.124210.117455.111079.105060.099377
31.154932.146154.137888.130104.122773.115868.109362.103233.097458.092016
32.145887.137362.129351.121820.114741.108085.101827.095942.090406.085200
33.137370.129100.121342.114064.107235.100826.094811.089165.083865.078889
34.129350.121335.113830.106802.100219.094054.088278.082867.077797.073045
35.121798.114036.106782.100001.093663.087737.082196.077014.072168.067635
36.114688.107177.100171.093634.087535.081844.076532.071574.066946.062625
37.107992.100730.093969.087673.081809.076347.071259.066519.062102.057986
38.101688.094671.088151.082090.076457.071219.066349.061821.057609.053690
39.095751.088977.082693.076864.071455.066436.061778.057454.053440.049713
40.090161.083625.077573.071970.066780.061974.057521.053396.049573.046031
41.084897.078595.072770.067387.062412.057811.053558.049625.045987.042621
42.079941.073867.068265.063097.058329.053929.049868.046120.042659.039464
43.075274.069424.064038.059079.054513.050307.046432.042862.039572.036541
44.070880.065248.060074.055318.050946.046928.043233.039835.036709.033834
45.066742.061323.056354.051796.047613.043776.040254.037021.034053.031328
46.062845.057635.052865.048498.044499.040836.037480.034406.031589.029007
47.059176.054168.049592.045410.041587.038093.034898.031976.029303.026859
48.055722.050910.046522.042519.038867.035535.032493.029717.027183.024869
49.052469.047848.043641.039812.036324.033148.030255.027618.025216.023027
50.049405.044970.040939.037277.033948.030922.028170.025668.023392.021321
51.046521.042265.038405.034903.031727.028845.026229.023855.021699.019742
52.043805.039722.036027.032681.029651.026907.024422.022170.020129.018280
53.041248.037333.033796.030600.027711.025100.022739.020604.018673.016925
54.038840.035087.031704.028652.025899.023414.021172.019149.017322.015672
55.036572.032977.029741.026828.024204.021842.019714.017796.016068.014511
56.034437.030993.027900.025119.022621.020375.018355.016539.014906.013436
57.032427.029129.026172.023520.021141.019006.017091.015371.013827.012441
58.030534.027377.024552.022023.019758.017730.015913.014285.012827.011519
59.028751.025730.023032.020620.018465.016539.014817.013276.011899.010666
60.027073.024183.021606.019307.017257.015428.013796.012339.011038.009876

Table B—Term Certain Remainder Factors Applicable After April 30, 1989

YearsInterest rate
8.2%8.4%8.6%8.8%9.0%9.2%9.4%9.6%9.8%10.0%
1.924214.922509.920810.919118.917431.915751.914077.912409.910747.909091
2.854172.851023.847892.844777.841680.838600.835536.832490.829460.826446
3.789438.785077.780747.776450.772183.767948.763744.759571.755428.751315
4.729610.724241.718920.713649.708425.703250.698121.693039.688003.683013
5.674316.668119.661989.655927.649931.644001.638136.632335.626597.620921
6.623213.616346.609566.602874.596267.589745.583305.576948.570671.564474
7.575982.568585.561295.554112.547034.540059.533186.526412.519737.513158
8.532331.524524.516846.509294.501866.494560.487373.480303.473349.466507
9.491988.483879.475917.468101.460428.452894.445496.438233.431101.424098
10.454703.446383.438230.430240.422411.414738.407218.399848.392624.385543
11.420243.411792.403526.395441.387533.379797.372228.364824.357581.350494
12.388394.379882.371571.363457.355535.347799.340245.332869.325666.318631
13.358960.350445.342147.334060.326179.318497.311010.303713.296599.289664
14.331756.323288.315052.307040.299246.291664.284287.277110.270127.263331
15.306613.298236.290103.282206.274538.267092.259860.252838.246017.239392
16.283376.275126.267130.259381.251870.244589.237532.230691.224059.217629
17.261901.253806.245976.238401.231073.223983.217123.210485.204061.197845
18.242052.234139.226497.219119.211994.205113.198467.192048.185848.179859
19.223708.215995.208561.201396.194490.187832.181414.175226.169260.163508
20.206754.199257.192045.185107.178431.172007.165826.159878.154153.148644
21.191085.183817.176837.170135.163698.157516.151578.145874.140395.135131
22.176604.169573.162834.156374.150182.144245.138554.133097.127864.122846
23.163220.156432.149939.143726.137781.132093.126649.121439.116452.111678
24.150850.144310.138065.132101.126405.120964.115767.110802.106058.101526
25.139418.133128.127132.121416.115968.110773.105820.101097.096592.092296
26.128852.122811.117064.111596.106393.101441.096727.092241.087971.083905
27.119087.113295.107794.102570.097608.092894.088416.084162.080119.076278
28.110062.104515.099258.094274.089548.085068.080819.076790.072968.069343
29.101721.096416.091398.086649.082155.077901.073875.070064.066456.063039
30.094012.088945.084160.079640.075371.071338.067527.063927.060524.057309
31.086887.082053.077495.073199.069148.065328.061725.058327.055122.052099
32.080302.075694.071358.067278.063438.059824.056422.053218.050202.047362
33.074216.069829.065708.061837.058200.054784.051574.048557.045722.043057
34.068592.064418.060504.056835.053395.050168.047142.044304.041641.039143
35.063394.059426.055713.052238.048986.045942.043092.040423.037924.035584
36.058589.054821.051301.048013.044941.042071.039389.036882.034539.032349
37.054149.050573.047239.044130.041231.038527.036005.033652.031457.029408
38.050045.046654.043498.040560.037826.035281.032911.030704.028649.026735
39.046253.043039.040053.037280.034703.032309.030083.028015.026092.024304
40.042747.039703.036881.034264.031838.029587.027498.025561.023763.022095
41.039508.036627.033961.031493.029209.027094.025136.023322.021642.020086
42.036514.033789.031271.028946.026797.024811.022976.021279.019711.018260
43.033746.031170.028795.026605.024584.022721.021002.019415.017951.016600
44.031189.028755.026515.024453.022555.020807.019197.017715.016349.015091
45.028825.026527.024415.022475.020692.019054.017548.016163.014890.013719
46.026641.024471.022482.020657.018984.017449.016040.014747.013561.012472
47.024622.022575.020701.018986.017416.015978.014662.013456.012351.011338
48.022756.020825.019062.017451.015978.014632.013402.012277.011248.010307
49.021031.019212.017552.016039.014659.013400.012250.011202.010244.009370
50.019437.017723.016163.014742.013449.012271.011198.010221.009330.008519
51.017964.016350.014883.013550.012338.011237.010236.009325.008497.007744
52.016603.015083.013704.012454.011319.010290.009356.008508.007739.007040
53.015345.013914.012619.011446.010385.009423.008552.007763.007048.006400
54.014182.012836.011620.010521.009527.008629.007817.007083.006419.005818
55.013107.011841.010699.009670.008741.007902.007146.006463.005846.005289
56.012114.010923.009852.008888.008019.007237.006532.005897.005324.004809
57.011196.010077.009072.008169.007357.006627.005971.005380.004849.004371
58.010347.009296.008354.007508.006749.006069.005458.004909.004416.003974
59.009563.008576.007692.006901.006192.005557.004989.004479.004022.003613
60.008838.007911.007083.006343.005681.005089.004560.004087.003663.003284

Table B—Term Certain Remainder Factors Applicable After April 30, 1989

YearsInterest rate
10.2%10.4%10.6%10.8%11.0%11.2%11.4%11.6%11.8%12.0%
1.907441.905797.904159.902527.900901.899281.897666.896057.894454.892857
2.823449.820468.817504.814555.811622.808706.805804.802919.800049.797194
3.747232.743178.739153.735158.731191.727253.723343.719461.715607.711780
4.678069.673168.668312.663500.658731.654005.649321.644679.640078.635518
5.615307.609754.604261.598827.593451.588134.582873.577669.572520.567427
6.558355.552313.546348.540457.534641.528897.523225.517625.512093.506631
7.506674.500284.493985.487777.481658.475627.469682.463821.458044.452349
8.459777.453156.446641.440232.433926.427722.421617.415610.409700.403883
9.417221.410467.403835.397322.390925.384642.378472.372411.366458.360610
10.378603.371800.365131.358593.352184.345901.339741.333701.327780.321973
11.343560.336775.330137.323640.317283.311062.304974.299016.293184.287476
12.311760.305050.298496.292094.285841.279732.273765.267935.262240.256675
13.282904.276313.269888.263623.257514.251558.245749.240085.234561.229174
14.256719.250284.244022.237927.231995.226221.220601.215130.209804.204620
15.232957.226706.220634.214735.209004.203436.198026.192769.187661.182696
16.211395.205350.199489.193804.188292.182946.177761.172732.167854.163122
17.191828.186005.180369.174914.169633.164520.159570.154778.150138.145644
18.174073.168483.163083.157864.152822.147950.143241.138690.134291.130040
19.157961.152612.147453.142477.137678.133048.128582.124274.120117.116107
20.143340.138235.133321.128589.124034.119648.115424.111357.107439.103667
21.130073.125213.120543.116055.111742.107597.103612.099782.096100.092560
22.118033.113418.108990.104743.100669.096760.093009.089410.085957.082643
23.107108.102733.098544.094533.090693.087014.083491.080117.076884.073788
24.097195.093056.089100.085319.081705.078250.074947.071789.068770.065882
25.088198.084289.080560.077003.073608.070369.067278.064327.061511.058823
26.080035.076349.072839.069497.066314.063281.060393.057641.055019.052521
27.072627.069157.065858.062723.059742.056908.054213.051650.049212.046894
28.065905.062642.059547.056609.053822.051176.048665.046281.044018.041869
29.059804.056741.053840.051091.048488.046022.043685.041470.039372.037383
30.054269.051396.048680.046111.043683.041386.039214.037160.035216.033378
31.049246.046554.044014.041617.039354.037218.035201.033297.031500.029802
32.044688.042169.039796.037560.035454.033469.031599.029836.028175.026609
33.040552.038196.035982.033899.031940.030098.028365.026735.025201.023758
34.036798.034598.032533.030595.028775.027067.025463.023956.022541.021212
35.033392.031339.029415.027613.025924.024341.022857.021466.020162.018940
36.030301.028387.026596.024921.023355.021889.020518.019235.018034.016910
37.027497.025712.024047.022492.021040.019684.018418.017236.016131.015098
38.024952.023290.021742.020300.018955.017702.016533.015444.014428.013481
39.022642.021096.019658.018321.017077.015919.014841.013839.012905.012036
40.020546.019109.017774.016535.015384.014316.013323.012400.011543.010747
41.018645.017309.016071.014923.013860.012874.011959.011111.010325.009595
42.016919.015678.014531.013469.012486.011577.010735.009956.009235.008567
43.015353.014201.013138.012156.011249.010411.009637.008922.008260.007649
44.013932.012864.011879.010971.010134.009362.008651.007994.007389.006830
45.012642.011652.010740.009902.009130.008419.007765.007163.006609.006098
46.011472.010554.009711.008937.008225.007571.006971.006419.005911.005445
47.010410.009560.008780.008065.007410.006809.006257.005752.005287.004861
48.009447.008659.007939.007279.006676.006123.005617.005154.004729.004340
49.008572.007844.007178.006570.006014.005506.005042.004618.004230.003875
50.007779.007105.006490.005929.005418.004952.004526.004138.003784.003460
51.007059.006435.005868.005351.004881.004453.004063.003708.003384.003089
52.006406.005829.005306.004830.004397.004005.003647.003322.003027.002758
53.005813.005280.004797.004359.003962.003601.003274.002977.002708.002463
54.005275.004783.004337.003934.003569.003238.002939.002668.002422.002199
55.004786.004332.003922.003551.003215.002912.002638.002390.002166.001963
56.004343.003924.003546.003205.002897.002619.002368.002142.001938.001753
57.003941.003554.003206.002892.002610.002355.002126.001919.001733.001565
58.003577.003220.002899.002610.002351.002118.001908.001720.001550.001398
59.003246.002916.002621.002356.002118.001905.001713.001541.001387.001248
60.002945.002642.002370.002126.001908.001713.001538.001381.001240.001114

Table B—Term Certain Remainder Factors Applicable After April 30, 1989

YearsInterest rate
12.2%12.4%12.6%12.8%13.0%13.2%13.4%13.6%13.8%14.0%
1.891266.889680.888099.886525.884956.883392.881834.880282.878735.877193
2.794354.791530.788721.785926.783147.780382.777632.774896.772175.769468
3.707981.704208.700462.696743.693050.689383.685742.682127.678536.674972
4.630999.626520.622080.617680.613319.608996.604711.600464.596254.592080
5.562388.557402.552469.547589.542760.537982.533255.528577.523949.519369
6.501237.495909.490648.485451.480319.475249.470242.465297.460412.455587
7.446735.441200.435744.430364.425061.419831.414676.409592.404580.399637
8.398160.392527.386984.381529.376160.370876.365675.360557.355518.350559
9.354866.349223.343680.338235.332885.327629.322465.317391.312406.307508
10.316280.310697.305222.299853.294588.289425.284361.279394.274522.269744
11.281889.276421.271068.265827.260698.255676.250759.245945.241232.236617
12.251238.245926.240735.235663.230706.225862.221128.216501.211979.207559
13.223920.218795.213797.208921.204165.199525.194998.190582.186273.182069
14.199572.194658.189873.185213.180677.176258.171956.167766.163685.159710
15.177872.173183.168626.164196.159891.155705.151637.147681.143835.140096
16.158531.154077.149757.145564.141496.137549.133718.130001.126393.122892
17.141293.137080.132999.129046.125218.121510.117917.114438.111066.107800
18.125930.121957.118116.114403.110812.107341.103984.100737.097598.094561
19.112237.108503.104899.101421.098064.094824.091696.088677.085762.082948
20.100033.096533.093161.089912.086782.083767.080861.078061.075362.072762
21.089156.085883.082736.079709.076798.073999.071306.068716.066224.063826
22.079462.076408.073478.070664.067963.065370.062880.060489.058193.055988
23.070821.067979.065255.062646.060144.057747.055450.053247.051136.049112
24.063121.060480.057953.055537.053225.051014.048898.046873.044935.043081
25.056257.053807.051468.049235.047102.045065.043119.041261.039486.037790
26.050140.047871.045709.043648.041683.039810.038024.036321.034698.033149
27.044688.042590.040594.038695.036888.035168.033531.031973.030490.029078
28.039829.037892.036052.034304.032644.031067.029569.028145.026793.025507
29.035498.033711.032017.030411.028889.027444.026075.024776.023544.022375
30.031638.029992.028435.026960.025565.024244.022994.021810.020689.019627
31.028198.026684.025253.023901.022624.021417.020277.019199.018180.017217
32.025132.023740.022427.021189.020021.018920.017881.016900.015975.015102
33.022399.021121.019917.018785.017718.016714.015768.014877.014038.013248
34.019964.018791.017689.016653.015680.014765.013905.013096.012336.011621
35.017793.016718.015709.014763.013876.013043.012261.011528.010840.010194
36.015858.014873.013951.013088.012279.011522.010813.010148.009525.008942
37.014134.013233.012390.011603.010867.010178.009535.008933.008370.007844
38.012597.011773.011004.010286.009617.008992.008408.007864.007355.006880
39.011227.010474.009772.009119.008510.007943.007415.006922.006463.006035
40.010007.009319.008679.008084.007531.007017.006538.006093.005679.005294
41.008919.008291.007708.007167.006665.006199.005766.005364.004991.004644
42.007949.007376.006845.006354.005898.005476.005085.004722.004386.004074
43.007084.006562.006079.005633.005219.004837.004484.004157.003854.003573
44.006314.005838.005399.004993.004619.004273.003954.003659.003386.003135
45.005628.005194.004795.004427.004088.003775.003487.003221.002976.002750
46.005016.004621.004258.003924.003617.003335.003075.002835.002615.002412
47.004470.004111.003782.003479.003201.002946.002711.002496.002298.002116
48.003984.003658.003359.003084.002833.002602.002391.002197.002019.001856
49.003551.003254.002983.002734.002507.002299.002108.001934.001774.001628
50.003165.002895.002649.002424.002219.002031.001859.001702.001559.001428
51.002821.002576.002353.002149.001963.001794.001640.001499.001370.001253
52.002514.002292.002089.001905.001737.001585.001446.001319.001204.001099
53.002241.002039.001856.001689.001538.001400.001275.001161.001058.000964
54.001997.001814.001648.001497.001361.001237.001124.001022.000930.000846
55.001780.001614.001463.001327.001204.001093.000991.000900.000817.000742
56.001586.001436.001300.001177.001066.000965.000874.000792.000718.000651
57.001414.001277.001154.001043.000943.000853.000771.000697.000631.000571
58.001260.001136.001025.000925.000835.000753.000680.000614.000554.000501
59.001123.001011.000910.000820.000739.000665.000600.000540.000487.000439
60.001001.000900.000809.000727.000654.000588.000529.000476.000428.000385

Table J—Adjustment Factors for Term Certain Annuities Payable at the Beginning of Each Interval Applicable After April 30, 1989

[Frequency of payments]

Interest rateAnnuallySemi
annually
QuarterlyMonthlyWeekly
4.21.04201.03141.02611.02261.0213
4.41.04401.03291.02741.02371.0223
4.61.04601.03441.02861.02471.0233
4.81.04801.03591.02981.02581.0243
5.01.05001.03731.03111.02691.0253
5.21.05201.03881.03231.02791.0263
5.41.05401.04031.03351.02901.0273
5.61.05601.04181.03481.03011.0283
5.81.05801.04331.03601.03111.0293
6.01.06001.04481.03721.03221.0303
6.21.06201.04631.03851.03331.0313
6.41.06401.04781.03971.03431.0323
6.61.06601.04921.04091.03541.0333
6.81.06801.05071.04221.03651.0343
7.01.07001.05221.04341.03751.0353
7.21.07201.05371.04461.03861.0363
7.41.07401.05521.04581.03961.0373
7.61.07601.05671.04711.04071.0383
7.81.07801.05811.04831.04181.0393
8.01.08001.05961.04951.04281.0403
8.21.08201.06111.05071.04391.0413
8.41.08401.06261.05201.04491.0422
8.61.08601.06411.05321.04601.0432
8.81.08801.06551.05441.04711.0442
9.01.09001.06701.05561.04811.0452
9.21.09201.06851.05691.04921.0462
9.41.09401.07001.05811.05021.0472
9.61.09601.07151.05931.05131.0482
9.81.09801.07291.06051.05231.0492
10.01.10001.07441.06181.05341.0502
10.21.10201.07591.06301.05441.0512
10.41.10401.07741.06421.05551.0521
10.61.10601.07881.06541.05651.0531
10.81.10801.08031.06661.05761.0541
11.01.11001.08181.06791.05861.0551
11.21.11201.08331.06911.05971.0561
11.41.11401.08471.07031.06071.0571
11.61.11601.08621.07151.06181.0581
11.81.11801.08771.07271.06281.0590
12.01.12001.08921.07391.06391.0600
12.21.12201.09061.07521.06491.0610
12.41.12401.09211.07641.06601.0620
12.61.12601.09361.07761.06701.0630
12.81.12801.09501.07881.06811.0639
13.01.13001.09651.08001.06911.0649
13.21.13201.09801.08121.07011.0659
13.41.13401.09941.08241.07121.0669
13.61.13601.10091.08361.07221.0679
13.81.13801.10241.08491.07331.0688
14.01.14001.10391.08611.07431.0698

Table K—Adjustment Factors For Annuities Payable At The End Of Each Interval Applicable After April 30, 1989

[Frequency of Payments]

Interest RateAnnuallySemi
annually
QuarterlyMonthlyWeekly
4.21.00001.01041.01561.01911.0205
4.41.00001.01091.01641.02001.0214
4.61.00001.01141.01711.02091.0224
4.81.00001.01191.01781.02181.0234
5.01.00001.01231.01861.02271.0243
5.21.00001.01281.01931.02361.0253
5.41.00001.01331.02001.02451.0262
5.61.00001.01381.02081.02541.0272
5.81.00001.01431.02151.02631.0282
6.01.00001.01481.02221.02721.0291
6.21.00001.01531.02301.02811.0301
6.41.00001.01581.02371.02901.0311
6.61.00001.01621.02441.02991.0320
6.81.00001.01671.02521.03081.0330
7.01.00001.01721.02591.03171.0339
7.21.00001.01771.02661.03261.0349
7.41.00001.01821.02731.03351.0358
7.61.00001.01871.02811.03441.0368
7.81.00001.01911.02881.03531.0378
8.01.00001.01961.02951.03621.0387
8.21.00001.02011.03021.03701.0397
8.41.00001.02061.03101.03791.0406
8.61.00001.02111.03171.03881.0416
8.81.00001.02151.03241.03971.0425
9.01.00001.02201.03311.04061.0435
9.21.00001.02251.03391.04151.0444
9.41.00001.02301.03461.04241.0454
9.61.00001.02351.03531.04331.0463
9.81.00001.02391.03601.04421.0473
10.01.00001.02441.03681.04501.0482
10.21.00001.02491.03751.04591.0492
10.41.00001.02541.03821.04681.0501
10.61.00001.02581.03891.04771.0511
10.81.00001.02631.03961.04861.0520
11.01.00001.02681.04041.04951.0530
11.21.00001.02731.04111.05031.0539
11.41.00001.02771.04181.05121.0549
11.61.00001.02821.04251.05211.0558
11.81.00001.02871.04321.05301.0568
12.01.00001.02921.04391.05391.0577
12.21.00001.02961.04471.05481.0587
12.41.00001.03011.04541.05561.0596
12.61.00001.03061.04611.05651.0605
12.81.00001.03101.04681.05741.0615
13.01.00001.03151.04751.05831.0624
13.21.00001.03201.04821.05911.0634
13.41.00001.03241.04891.06001.0643
13.61.00001.03291.04961.06091.0652
13.81.00001.03341.05041.06181.0662
14.01.00001.03391.05111.06261.0671

(7) Actuarial Table S and Table 2000CM where the valuation date is on or after May 1, 2009. Except as provided in §20.7520-2(b) (pertaining to certain limitations on the use of prescribed tables), for determination of the present value of an interest that is dependent on the termination of a life interest, Table 2000CM and Table S (single life remainder factors applicable where the valuation date is on or after May 1, 2009) contained in this paragraph (d)(7) and Table J and Table K contained in paragraph (d)(6) of this section, must be used in the application of the provisions of this section when the section 7520 interest rate component is between 0.2 and 14 percent.

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(e) Effective/applicability dates. This section applies after April 30, 1999, and before May 1, 2009.

[T.D. 8540, 59 FR 30152, June 10, 1994, as amended by T.D. 8819, 64 FR 23212, Apr. 30, 1999; T.D. 8886, 65 FR 36929, June 12, 2000; T.D. 9448, 74 FR 21484, May 7, 2009; T.D. 9540, 76 FR 49612, Aug. 10, 2011]

§20.2031-8   Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.

(a) Valuation of certain life insurance and annuity contracts. (1) The value of a contract for the payment of an annuity, or an insurance policy on the life of a person other than the decedent, issued by a company regularly engaged in the selling of contracts of that character is established through the sale by that company of comparable contracts. An annuity payable under a combination annuity contract and life insurance policy on the decedent's life (e.g., a “retirement income” policy with death benefit) under which there was no insurance element at the time of the decedent's death (see paragraph (d) of §20.2039-1) is treated like a contract for the payment of an annuity for purposes of this section.

(2) As valuation of an insurance policy through sale of comparable contracts is not readily ascertainable when, at the date of the decedent's death, the contract has been in force for some time and further premium payments are to be made, the value may be approximated by adding to the interpolated terminal reserve at the date of the decedent's death the proportionate part of the gross premium last paid before the date of the decedent's death which covers the period extending beyond that date. If, however, because of the unusual nature of the contract such an approximation is not reasonably close to the full value of the contract, this method may not be used.

(3) The application of this section may be illustrated by the following examples. In each case involving an insurance contract, it is assumed that there are no accrued dividends or outstanding indebtedness on the contract.

Example (1). X purchased from a life insurance company a joint and survivor annuity contract under the terms of which X was to receive payments of $1,200 annually for his life and, upon X's death, his wife was to receive payments of $1,200 annually for her life. Five years after such purchase, when his wife was 50 years of age, X died. The value of the annuity contract at the date of X's death is the amount which the company would charge for an annuity providing for the payment of $1,200 annually for the life of a female 50 years of age.
Example (2). Y died holding the incidents of ownership in a life insurance policy on the life of his wife. The policy was one on which no further payments were to be made to the company (e.g., a single premium policy or a paid-up policy). The value of the insurance policy at the date of Y's death is the amount which the company would charge for a single premium contract of the same specified amount on the life of a person of the age of the insured.
Example (3). Z died holding the incidents of ownership in a life insurance policy on the life of his wife. The policy was an ordinary life policy issued nine years and four months prior to Z's death and at a time when Z's wife was 35 years of age. The gross annual premium is $2,811 and the decedent died four months after the last premium due date. The value of the insurance policy at the date of Z's death is computed as follows:
Terminal reserve at end of tenth year$14,601.00
Terminal reserve at end of ninth year12,965.00
   Increase1,636.00
One-third of such increase (Z having died four months following the last preceding premium date) is545.33
Terminal reserve at end of ninth year12,965.00
Interpolated terminal reserve at date of Z's death13,510.33
Two-thirds of gross premium (2/3×$2,811)1,874.00
   Value of the insurance policy15,384.33

(b) Valuation of shares in an open-end investment company. (1) The fair market value of a share in an open-end investment company (commonly known as a “mutual fund”) is the public redemption price of a share. In the absence of an affirmative showing of the public redemption price in effect at the time of death, the last public redemption price quoted by the company for the date of death shall be presumed to be the applicable public redemption price. If the alternate valuation method under 2032 is elected, the last public redemption price quoted by the company for the alternate valuation date shall be the applicable redemption price. If there is no public redemption price quoted by the company for the applicable valuation date (e.g., the valuation date is a Saturday, Sunday, or holiday), the fair market value of the mutual fund share is the last public redemption price quoted by the company for the first day preceding the applicable valuation date for which there is a quotation. In any case where a dividend is declared on a share in an open-end investment company before the decedent's death but payable to shareholders of record on a date after his death and the share is quoted “exdividend” on the date of the decedent's death, the amount of the dividend is added to the ex-dividend quotation in determining the fair market value of the share as of the date of the decedent's death. As used in this paragraph, the term “open-end investment company” includes only a company which on the applicable valuation date was engaged in offering its shares to the public in the capacity of an open-end investment company.

(2) The provisions of this paragraph shall apply with respect to estates of decedents dying after August 16, 1954.

[T.D. 6680, 28 FR 10872, Oct. 10, 1963, as amended by T.D. 7319, 39 FR 26723, July 23, 1974]

§20.2031-9   Valuation of other property.

The valuation of any property not specifically described in §§20.2031-2 to 20.2031-8 is made in accordance with the general principles set forth in §20.2031-1. For example, a future interest in property not subject to valuation in accordance with the actuarial principles set forth in §20.2031-7 is to be valued in accordance with the general principles set forth in §20.2031-1.

§20.2032-1   Alternate valuation.

(a) In general. In general, section 2032 provides for the valuation of a decedent's gross estate at a date other than the date of the decedent's death. More specifically, if an executor elects the alternate valuation method under section 2032, the property included in the decedent's gross estate on the date of his death is valued as of whichever of the following dates is applicable:

(1) Any property distributed, sold, exchanged, or otherwise disposed of within 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death is valued as of the date on which it is first distributed, sold, exchanged, or otherwise disposed of;

(2) Any property not distributed, sold, exchanged, or otherwise disposed of within 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death is valued as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after the date of the decedent's death;

(3) Any property, interest, or estate which is affected by mere lapse of time is valued as of the date of the decedent's death, but adjusted for any difference in its value not due to mere lapse of time as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death, or as of the date of its distribution, sale, exchange, or other disposition, whichever date first occurs.

(b) Method and effect of election—(1) In general. The election to use the alternate valuation method is made on the return of tax imposed by section 2001. For purposes of this paragraph (b), the term return of tax imposed by section 2001 means the last estate tax return filed by the executor on or before the due date of the return (including extensions of time to file actually granted) or, if a timely return is not filed, the first estate tax return filed by the executor after the due date, provided the return is filed no later than 1 year after the due date (including extensions of time to file actually granted). Once the election is made, it is irrevocable, provided that an election may be revoked on a subsequent return filed on or before the due date of the return (including extensions of time to file actually granted). The election may be made only if it will decrease both the value of the gross estate and the sum (reduced by allowable credits) of the estate tax and the generation-skipping transfer tax payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate. If the election is made, the alternate valuation method applies to all property included in the gross estate and cannot be applied to only a portion of the property.

(2) Protective election. If, based on the return of tax as filed, use of the alternate valuation method would not result in a decrease in both the value of the gross estate and the sum (reduced by allowable credits) of the estate tax and the generation-skipping transfer tax liability payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate, a protective election may be made to use the alternate valuation method if it is subsequently determined that such a decrease would occur. A protective election is made on the return of tax imposed by section 2001. The protective election is irrevocable as of the due date of the return (including extensions of time actually granted). The protective election becomes effective on the date on which it is determined that use of the alternate valuation method would result in a decrease in both the value of the gross estate and in the sum (reduced by allowable credits) of the estate tax and generation-skipping transfer tax liability payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate.

(3) Requests for extension of time to make the election. A request for an extension of time to make the election or protective election pursuant to §§301.9100-1 and 301.9100-3 of this chapter will not be granted unless the return of tax imposed by section 2001 is filed no later than 1 year after the due date of the return (including extensions of time actually granted).

(c) Meaning of “distributed, sold, exchanged, or otherwise disposed of”. (1) The phrase “distributed, sold, exchanged, or otherwise disposed of” comprehends all possible ways by which property ceases to form a part of the gross estate. For example, money on hand at the date of the decedent's death which is thereafter used in the payment of funeral expenses, or which is thereafter invested, falls within the term “otherwise disposed of.” The term also includes the surrender of a stock certificate for corporate assets in complete or partial liquidation of a corporation pursuant to section 331. The term does not, however, extend to transactions which are mere changes in form. Thus, it does not include a transfer of assets to a corporation in exchange for its stock in a transaction with respect to which no gain or loss would be recognizable for income tax purposes under section 351. Nor does it include an exchange of stock or securities in a corporation for stock or securities in the same corporation or another corporation in a transaction, such as a merger, recapitalization, reorganization or other transaction described in section 368 (a) or 355, with respect to which no gain or loss is recognizable for income tax purposes under section 354 or 355.

(2) Property may be “distributed” either by the executor, or by a trustee of property included in the gross estate under section 2035 through 2038, or section 2041. Property is considered as “distributed” upon the first to occur of the following:

(i) The entry of an order or decree of distribution, if the order or decree subsequently becomes final;

(ii) The segregation or separation of the property from the estate or trust so that it becomes unqualifiedly subject to the demand or disposition of the distributee; or

(iii) The actual paying over or delivery of the property to the distributee.

(3) Property may be “sold, exchanged, or otherwise disposed of” by:

(i) The executor;

(ii) A trustee or other donee to whom the decedent during his lifetime transferred property included in his gross estate under sections 2035 through 2038, or section 2041;

(iii) An heir or devisee to whom title to property passes directly under local law;

(iv) A surviving joint tenant or tenant by the entirety; or

(v) Any other person.

If a binding contract for the sale, exchange, or other disposition of property is entered into, the property is considered as sold, exchanged, or otherwise disposed of on the effective date of the contract, unless the contract is not subsequently carried out substantially in accordance with its terms. The effective date of a contract is normally the date it is entered into (and not the date it is consummated, or the date legal title to the property passes) unless the contract specifies a different effective date.

(d) “Included property” and “excluded property”. If the executor elects the alternate valuation method under section 2432, all property interests existing at the date of decedent's death which form a part of his gross estate as determined under sections 2033 through 2044 are valued in accordance with the provisions of this section. Such property interests are referred to in this section as “included property”. Furthermore, such property interests remain “included property” for the purpose of valuing the gross estate under the alternate valuation method even though they change in form during the alternate valuation period by being actually received, or disposed of, in whole or in part, by the estate. On the other hand, property earned or accrued (whether received or not) after the date of the decedent's death and during the alternate valuation period with respect to any property interest existing at the date of the decedent's death, which does not represent a form of “included property” itself or the receipt of “included property” is excluded in valuing the gross estate under the alternate valuation method. Such property is referred to in this section as “excluded property”. Illustrations of “included property” and “excluded property” are contained in the subparagraphs (1) to (4) of this paragraph:

(1) Interest-bearing obligations. Interest-bearing obligations, such as bonds or notes, may comprise two elements of “included property” at the date of the decedent's death, namely, (i) the principal of the obligation itself, and (ii) interest accrued to the date of death. Each of these elements is to be separately valued as of the applicable valuation date. Interest accrued after the date of death and before the subsequent valuation date constitutes “excluded property”. However, any part payment or principal made between the date of death and the subsequent valuation date, or any advance payment of interest for a period after the subsequent valuation date made during the alternate valuation period which has the effect of reducing the value of the principal obligation as of the subsequent valuation date, will be included in the gross estate, and valued as of the date of such payment.

(2) Leased property. The principles set forth in subparagraph (1) of this paragraph with respect to interest- bearing obligations also apply to leased realty or personalty which is included in the gross estate and with respect to which an obligation to pay rent has been reserved. Both the realty or personalty itself and the rents accrued to the date of death constitute “included property”, and each is to be separately valued as of the applicable valuation date. Any rent accrued after the date of death and before the subsequent valuation date is “excluded property”. Similarly, the principle applicable with respect to interest paid in advance is equally applicable with respect to advance payments of rent.

(3) Noninterest-bearing obligations. In the case of noninterest-bearing obligations sold at a discount, such as savings bonds, the principal obligation and the discount amortized to the date of death are property interests existing at the date of death and constitute “included property”. The obligation itself is to be valued at the subsequent valuation date without regard to any further increase in value due to amortized discount. The additional discount amortized after death and during the alternate valuation period is the equivalent of interest accruing during that period and is, therefore, not to be included in the gross estate under the alternate valuation method.

(4) Stock of a corporation. Shares of stock in a corporation and dividends declared to stockholders of record on or before the date of the decedent's death and not collected at the date of death constitute “included property” of the estate. On the other hand, ordinary dividends out of earnings and profits (whether in cash, shares of the corporation, or other property) declared to stockholders of record after the date of the decedent's death are “excluded property” and are not to be valued under the alternate valuation method. If, however, dividends are declared to stockholders of record after the date of the decedent's death with the effect that the shares of stock at the subsequent valuation date do not reasonably represent the same “included property” of the gross estate as existed at the date of the decedent's death, the dividends are “included property”, except to the extent that they are out of earnings of the corporation after the date of the decedent's death. For example, if a corporation makes a distribution in partial liquidation to stockholders of record during the alternate valuation period which is not accompanied by a surrender of a stock certificate for cancellation, the amount of the distribution received on stock included in the gross estate is itself “included property”, except to the extent that the distribution was out of earnings and profits since the date of the decedent's death. Similarly, if a corporation, in which the decedent owned a substantial interest and which possessed at the date of the decedent's death accumulated earnings and profits equal to its paid-in capital, distributed all of its accumulated earnings and profits as a cash dividend to shareholders of record during the alternate valuation period, the amount of the dividends received on stock includible in the gross estate will be included in the gross estate under the alternate valuation method. Likewise, a stock dividend distributed under such circumstances is “included property”.

(e) Illustrations of “included property” and “excluded property”. The application of paragraph (d) of this section may be further illustrated by the following example in which it is assumed that the decedent died on January 1, 1955:

DescriptionSubsequent valuation dateAlternate valueValue at date of death
Bond, par value $1,000, bearing interest at 4 percent payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1. Bond distributed to legatee on Mar. 1, 1955Mar. 1, 1955$1,000.00$1,000.00
Interest coupon of $10 attached to bond and not cashed at date of death although due and payable Nov. 1, 1954. Cashed by executor on Feb. 1, 1955Feb. 1, 195510.0010.00
Interest accrued from Nov. 1, 1954, to Jan. 1, 1955, collected on Feb. 1, 1955Feb. 1, 19556.676.67
Real estate, not disposed of within year following death. Rent of $300 due at the end of each quarter, Feb. 1, May 1, Aug. 1, and Nov. 1Jan. 1, 195611,000.0012,000.00
Rent due for quarter ending Nov. 1, 1954, but not collected until Feb. 1, 1955Feb. 1, 1955300.00300.00
Rent accrued for November and December 1954, collected on Feb. 1, 1955Feb. 1, 1955200.00200.00
Common stock, X Corporation, 500 shares, not disposed of within year following decedent's deathJan. 1, 195647,500.0050,000.00
Dividend of $2 per share declared Dec. 10, 1954, and paid on Jan. 10, 1955, to holders of record on Dec. 30, 1954Jan. 10, 19551,000.001,000.00

(f) Mere lapse of time. In order to eliminate changes in value due only to mere lapse of time, section 2032(a)(3) provides that any interest or estate “affected by mere lapse of time” is included in a decedent's gross estate under the alternate valuation method at its value as of the date of the decedent's death, but with adjustment for any difference in its value as of the subsequent valuation date not due to mere lapse of time. Properties, interests, or estates which are “affected by mere lapse of time” include patents, estates for the life of a person other than the decedent, remainders, reversions, and other like properties, interests, or estates. The phrase “affected by mere lapse of time” has no reference to obligations for the payment of money, whether or not interest-bearing, the value of which changes with the passing of time. However, such an obligation, like any other property, may become affected by lapse of time when made the subject of a bequest or transfer which itself is creative of an interest or estate so affected. The application of this paragraph is illustrated in subparagraphs (1) and (2) of this paragraph:

(1) [Reserved] Further guidance, see §20.2032-1T(f)(1).

(2) Patents. To illustrate the alternate valuation of a patent, assume that the decedent owned a patent which, on the date of the decedent's death, had an unexpired term of ten years and a value of $78,000. Six months after the date of the decedent's death, the patent was sold, because of lapse of time and other causes, for $60,000. The alternate value thereof would be obtained by dividing $60,000 by 0.95 (ratio of the remaining life of the patent at the alternate date to the remaining life of the patent at the date of the decedent's death), and would, therefore, be $63,157.89.

(g) Effect of election on deductions. If the executor elects the alternate valuation method under section 2032, any deduction for administration expenses under section 2053(b) (pertaining to property not subject to claims) or losses under section 2054 (or section 2106(a)(1), relating to estates of nonresidents not citizens) is allowed only to the extent that it is not otherwise in effect allowed in determining the value of the gross estate. Furthermore, the amount of any charitable deduction under section 2055 (or section 2106(a)(2), relating to the estates of nonresidents not citizens) or the amount of any marital deduction under section 2056 is determined by the value of the property with respect to which the deduction is allowed as of the date of the decedent's death, adjusted, however, for any difference in its value as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after death, or as of the date of its distribution, sale, exchange, or other disposition, whichever first occurs. However, no such adjustment may take into account any difference in value due to lapse of time or to the occurrence or nonoccurrence of a contingency.

(h) Effective date. Paragraph (b) of this section is applicable to decedents dying on or after January 4, 2005. However, pursuant to section 7805(b)(7), taxpayers may elect to apply paragraph (b) of this section retroactively if the period of limitations for filing a claim for a credit or refund of Federal estate or generation-skipping transfer tax under section 6511 has not expired.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 7238, 37 FR 28718, Dec. 29, 1972; T.D. 7955, 49 FR 19995, May 11, 1984; T.D. 8540, 59 FR 30103, June 10, 1994; T.D. 8819, 64 FR 23229, Apr. 30, 1999; T.D. 9172, 70 FR 296, Jan. 4, 2005; 74 FR 27080, June 8, 2009]

§20.2032-1T   Alternate valuation (temporary).

(a) through (e) [Reserved] For further guidance, see §20.2032-1(a) through (e).

(f) [Reserved] For further guidance, see §20.2032-1(f).

(1) Life estates, remainders, and similar interests. The values of life estates, remainders, and similar interests are to be obtained by applying the methods prescribed in §20.2031-7, using (i) the age of each person, the duration of whose life may affect the value of the interest, as of the date of the decedent's death, and (ii) the value of the property as of the alternate valuation date. For example, assume that the decedent, or the decedent's estate, was entitled to receive certain property worth $50,000 upon the death of A, who was entitled to the income for life. At the time of the decedent's death, on or after May 1, 2009, A was 47 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 6.2 percent. The value of the decedent's remainder interest at the date of the decedent's death would, as illustrated in Example 1 of §20.2031-7T(d)(5), be $9,336.00 ($50,000 × .18672). If, because of economic conditions, the property declined in value and was worth only $40,000 on the date that was 6 months after the date of the decedent's death, the value of the remainder interest would be $7,468.80 ($40,000 × .18672), even though A would be 48 years old on the alternate valuation date.

(f)(2) through (g) [Reserved] For further guidance, see §20.2032-1(f)(2) through (g).

(h) Effective/applicability date. Paragraph (f)(1) applies on or after May 1, 2009.

(i) Expiration date. Paragraph (f)(1) expires on or before May 1, 2012.

[T.D. 9448, 74 FR 21509, May 7, 2009]

§20.2032A-3   Material participation requirements for valuation of certain farm and closely-held business real property.

(a) In general. Under section 2032A, an executor may, for estate tax purposes, make a special election concerning valuation of qualified real property (as defined in section 2032A(b)) used as a farm for farming purposes or in another trade or business. If this election is made, the property will be valued on the basis of its value for its qualified use in farming or the other trade or business, rather than its fair market value determined on the basis of highest and best use (irrespective of whether its highest and best use is the use in farming or other business). For the special valuation rules of section 2032A to apply, the deceased owner and/or a member of the owner's family (as defined in section 2032A (e) (2)) must materially participate in the operation of the farm or other business. Whether the required material participation occurs is a factual determination, and the types of activities and financial risks which will support such a finding will vary with the mode of ownership of both the property itself and of any business in which it is used. Passively collecting rents, salaries, draws, dividends, or other income from the farm or other business is not sufficient for material participation, nor is merely advancing capital and reviewing a crop plan or other business proposal and financial reports each season or business year.

(b) Types of qualified property—(1) In general. Real property valued under section 2032A must pass from the decendent to a qualified heir or be acquired from the decedent by a qualified heir. The real property may be owned directly or may be owned indirectly through ownership of an interest in a corporation, a partnership, or a trust. Where the ownership is indirect, however, the decedent's interest in the business must, in addition to meeting the tests for qualification under section 2032A, qualify under the tests of section 6166 (b) (1) as an interest in a closely-held business on the date of the decedent's death and for sufficient other time (combined with periods of direct ownership) to equal at least 5 years of the 8 year period preceding the death. All specially valued property must be used in a trade or business. Directly owned real property that is leased by a decedent to a separate closely held business is considered to be qualified real property, but only if the separate business qualifies as a closely held business under section 6166 (b) (1) with respect to the decedent on the date of his or her death and for sufficient other time (combined with periods during which the property was operated as a proprietorship) to equal at least 5 years of the 8 year period preceding the death. For example, real property owned by the decedent and leased to a farming corporation or partnership owned and operated entirely by the decedent and fewer than 15 members of the decedent's family is eligible for special use valuation. Under section 2032A, the term trade or business applies only to an active business such as a manufacturing, mercantile, or service enterprise, or to the raising of agricultural or horticultural commodities, as distinguished from passive investment activities. The mere passive rental of property to a party other than a member of the decedent's family will not qualify. The decedent or a member of the decedent's family must own an equity interest in the farm operation. A trade or business is not necessarily present even though an office and regular hours are maintained for management of income producing assets, as the term “business” is not as broad under section 2032A as under section 162. Additionally, no trade or business is present in the case of activities not engaged in for profit. See section 183.

(2) Structures and other real property improvements. Qualified real property includes residential buildings and other structures and real property improvements occupied or used on a regular basis by the owner or lessee of real property (or by employees of the owner or lessee) for the purpose of operating the farm or other closely held business. A farm residence occupied by the decedent owner of the specially valued property is considered to be occupied for the purpose of operating the farm even though a family member (not the decedent) was the person materially participating in the operation of the farm as required under section 2032A (b) (1) (C).

(c) Period material participation must last. The required participation must last—

(1) For periods totalling 5 years or more during the 8 years immediately preceding the date of the decedent's death; and

(2) For periods totalling 5 years or more during any 8 year period ending after the date of the decedent's death (up to a maximum of 15 years after decedent's death, when the additional estate tax provisions of section 2032A(c) cease to apply).

In determining whether the material participation requirement is satisfied, no exception is made for periods during which real property is held by the decedent's estate. Additionally, contemporaneous material participation by 2 or more family members during a period totalling a year will not result in that year being counted as 2 or more years for purposes of satisfying the requirements of this paragraph (c). Death of a qualified heir (as defined in section 2032A(e)(1)) before the requisite time has passed ends any material participation requirement for that heir's portion of the property as to the origninal decedent's estate if the heir received a separate, joint or other undivided property interest from the decedent. If qualified heirs receive successive interests in specially valued property (e.g. life estate and remainder interests) from the decedent, the material participation requirement does not end with respect to any part of the property until the death of the last qualified heir (or, if earlier, the expiration of 15 years from the date of the decedent's death). The requirements of section 2032A will fully apply to an heir's estate if an election under this section is made for the same property by the heir's executor. In general, to determine whether the required participation has occurred, brief periods (e.g., periods of 30 days or less) during which there was no material participation may be disregarded. This is so only if these periods were both preceded and followed by substantial periods (e.g. periods of more than 120 days) in which there was uninterrupted material participation. See paragraph (e)(1) of this section which provides a special rule for periods when little or no activity is necessary to manage fully a farm.

(d) Period property must be owned by decedent and family members. Only real property which is actually owned by any combination of the decedent, members of the decedent's family, and qualified closely held businesses for periods totalling at least 5 of the 8 years preceding the date of decedent's death may be valued under section 2032A. For example, replacement property acquired in like-kind exchange under section 1031 is considered to be owned only from the date on which the replacement property is actually acquired. On the other hand, replacement property acquired as a result of an involuntary conversion in a transfer that would meet the requirements of section 2032A(h) if it occurred after the date of the decedent's death is considered to have been owned from the date in which the involuntarily converted property was acquired. Property transferred from a proprietorship to a corporation or a partnership during the 8-year period ending on the date of the decedent's death is considered to be continuously owned to the extent of the decedent's equity interest in the corporation or partnership if, (1) the transfer meets the requirements of section 351 or 721, respectively, and (2) the decedent's interest in the corporation or partnership meets the requirements for indirectly held property contained in paragraph (b)(1) of this section. Likewise, property transferred to a trust is considered to be continuously owned if the beneficial ownership of the trust property is such that the requirements of section 6166(b)(1)(C) would be so satisfied if the property were owned by a corporation and all beneficiaries having vested interests in the trust were shareholders in the corporation. Any periods following the transfer during which the interest in the corporation, partnership, or trust does not meet the requirements of section 6166(b)(1) may not be counted for purposes of satisfying the ownership requirements of this paragraph (d).

(e) Required activities—(1) In general. Actual employment of the decedent (or of a member of the decedent's family) on a substantially full-time basis (35 hours a week or more) or to any lesser extent necessay personally to manage fully the farm or business in which the real property to be valued under section 2032A is used constitutes material participation. For example, many farming operations require only seasonal activity. Material participation is present as long as all necessary functions are performed even though little or no actual activity occurs during nonproducing seasons. In the absence of this direct involvement in the farm or other business, the activities of either the decedent or family members must meet the standards prescribed in this paragraph and those prescribed in the regulations issued under section 1402(a)(1). Therefore, if the participant (or participants) is self-employed with respect to the farm or other trade or business, his or her income from the farm or other business must be earned income for purposes of the tax on self-employment income before the participant is considered to be materially participating under section 2032A. Payment of the self-employment tax is not conclusive as to the presence of material participation. If no self-employment taxes have been paid, however, material participation is presumed not to have occurred unless the executor demonstrates to the satisfaction of the Internal Revenue Service that material participation did in fact occur and informs the Service of the reason no such tax was paid. In addition, all such taxes (including interest and penalties) determined to be due must be paid. In determining whether the material participation requirement is satisfied, the activities of each participant are viewed separately from the activities of all other participants, and at any given time, the activities of at least one participant must be material. If the involvement is less than full-time, it must be pursuant to an arrangement providing for actual participation in the production or management of production where the land is used by any nonfamily member, or any trust or business entity, in farming or another business. The arrangement may be oral or written, but must be formalized in some manner capable of proof. Activities not contemplated by the arrangement will not support a finding of material participation under section 2032A, and activities of any agent or employee other than a family member may not be considered in determining the presence of material participation. Activities of family members are considered only if the family relationship existed at the time the activities occurred.

(2) Factors considered. No single factor is determinative of the presence of material participation, but physical work and participation in management decisions are the principal factors to be considered. As a minimum, the decedent and/or a family member must regularly advise or consult with the other managing party on the operation of the business. While they need not make all final management decisions alone, the decedent and/or family members must participate in making a substantial number of these decisions. Additionally, production activities on the land should be inspected regularly by the family participant, and funds should be advanced and financial responsibility assumed for a substantial portion of the expense involved in the operation of the farm or other business in which the real property is used. In the case of a farm, the furnishing by the owner or other family members of a substantial portion of the machinery, implements, and livestock used in the production activities is an important factor to consider in finding material participation. With farms, hotels, or apartment buildings, the operation of which qualifies as a trade or business, the participating decedent or heir's maintaining his or her principal place of residence on the premises is a factor to consider in determining whether the overall participation is material. Retention of a professional farm manager will not by itself prevent satisfaction of the material participation requirement by the decedent and family members. However, the decedent and/or a family member must personally materially participate under the terms of arrangement with the professional farm manager to satisfy this requirement.

(f) Special rules for corporations, partnerships, and trusts—(1) Required arrangement. With indirectly owned property as with property that is directly owned, there must be an arrangement calling for material participation in the business by the decedent owner or a family member. Where the real property is indirectly owned, however, even full-time involvement must be pursuant to an arrangement between the entity and the decedent or family member specifying the services to be performed. Holding an office in which certain material functions are inherent may constitute the necessary arrangement for material participation. Where property is owned by a trust, the arrangement will generally be found in one or more of four situations. First, the arrangement may result from appointment as a trustee. Second, the arrangement may result from an employer-employee relationship in which the participant is employed by a qualified closely held business owned by the trust in a position requiring his or her material participation in its activities. Third, the participants may enter into a contract with the trustees to manage, or take part in managing, the real property for the trust. Fourth, where the trust agreement expressly grants the management rights to the beneficial owner, that grant is sufficient to constitute the arrangement required under this section.

(2) Required activities. The same participation standards apply under section 2032A where property is owned by a qualified closely held business as where the property is directly owned. In the case of a corporation, a partnership, or a trust where the participating decedent and/or family members are employees and thereby not subject to self-employment income taxes, they are to be viewed as if they were self-employed, and their activities must be activities that would subject them to self-employment income taxes were they so. Where property is owned by a corporation, a partnership or a trust, participation in the management and operation of the real property itself as a component of the closely held business is the determinative factor. Nominally holding positions as a corporate officer or director and receiving a salary therefrom or merely being listed as a partner and sharing in profits and losses will not alone support a finding of material participation. This is so even though, as partners, the participants pay self-employment income taxes on their distributive shares of partnership earnings under §1.1402(a)-2. Further, it is especially true for corporate directors in states where the board of directors need not be an actively functioning entity or need only act informally. Corporate offices held by an owner are, however, factors to be considered with all other relevant facts in judging the degree of participation. When real property is directly owned and is leased to a corporation or partnership in which the decedent owns an interest which qualified as an interest in a trade or business within the meaning of section 6166(b)(1), the presence of material participation is determined by looking at the activities of the participant with regard to the property in whatever capacity rendered. During any periods when qualified real property is held by an estate, material participation is to be determined in the same manner as if the property were owned by a trust.

(g) Examples. The rules for determining material participation may be illustrated by the following examples. Additional illustrations may be found in examples (1) through (6) in §1.1402(a)-4.

Example (1). A, the decedent, actively operated his 100-acre farm on a full-time basis for 20 years. He then leased it to B for the 10 years immediately preceding his death. By the terms of the lease, A was to consult with B on where crops were to be planted, to supervise marketing of the crop, and to share equally with B in expenses and earnings. A was present on the farm each spring for consultation; however, once planting was completed, he left for his retirement cottage where he remained until late summer, at which time he returned to the farm to supervise the marketing operation. A at all times maintained the farm home in which he had lived for the time he had owned the farm and lived there when at the farm. In light of his activities, assumption of risks, and valuable knowledge of proper techniques for the particular land gained over 20 years of full-time farming on the land involved, A is deemed to have materially participated in the farming business.
Example (2). D is the 70-year old widow of farmer C. She lives on a farm for which special valuation has been elected and has lived there for 20 years. D leases the land to E under an arrangement calling for her participation in the operation of the farm. D annually raises a vegetable garden, chickens, and hogs. She also inspects the tobacco fields (which produce approximately 50 percent of farm income) weekly and informs E if she finds any work that needs to be done. D and E share expenses and income equally. Other decisions such as what fields to plant and when to plant and harvest crops are left to E, but D does occasionally make suggestions. During the harvest season, D prepares and serves meals for all temporary farm help. D is deemed to participate materially in the farm operations based on her farm residence and her involvement with the main money crop.
Example (3). Assume that D in example (2) moved to a nursing home 1 year after her husband's death. E completely operated the farm for her for 6 years following her move. If E is not a member of D's family, material participation ceases when D moves; however, if E is a member of D's family, E's material participation will prevent disqualification even if D owns the property. Further, upon D's death, the section 2032A valuation could be elected for her estate if E were a member of her family and the other requirements of section 203A were satisfied.
Example (4). F, a qualified heir, owned a specially valued farm. He contracted with G to manage the farm for him as F, a lawyer, lived and worked 15 miles away in a nearby town. F supplied all machinery and equipment and assumed financial responsiblity for the expenses of the farm operation. The contract specified that G was to submit a crop plan and a list of expenses and earnings for F's approval. It also called for F to inspect the farm regularly and to approve all expenditures over $100. In practice, F visited the farm weekly during the growing season to inspect and discuss operations. He actively participated in making important management decisions such as what fields to plant or pasture and how to utilize the subsidy program. F is deemed to have materially participated in the farm operation as his personal involvement amounted to more than managing an investment. Had F not regularly inspected the farm and participated in management decisions, however, he would not be considered to be materially participating. This would be true even though F did assume financial responsibility for the operation and did review annual crop plans.
Example (5). Decedent I owned 90 percent of all outstanding stock of X Corporation, a qualified closely-held business which owns real property to be specially valued. I held no formal position in the corporation and there was no arrangement for him to participate in daily business operations. I regularly spent several hours each day at the corporate offices and made decisions on many routine matters. I is not deemed to have materially participated in the X Corporation despite his activity because there was no arrangement requiring him to act in the manner in which he did.
Example (6). Decedent J was a senior partner in the law firm of X, Y, and Z, which is a qualified closely held business owning the building in which its offices are located. J ceased to practice law actively 5 years before his death in 1977; however, he remained a full partner and annually received a share of firm profits. J is not deemed to have materially participated under section 2032A even though he still may have reported his distributive share of partnership income for self-employment income tax purposes if the payments were not made pursuant to any retirement agreement. This is so because J does not meet the requirement of actual personal material participation.
Example (7). K, the decedent, owned a tree farm. He contracted with L, a professional forester, to manage the property for him as K, a doctor, lived and worked in a town 50 miles away. The activities of L are not considered in determining whether K materially participated in the tree farm operation. During the 5 years preceding K's death, there was no need for frequent inspections of the property or consultation concerning it, inasmuch as most of the land had been reforested and the trees were in the beginning stages of their growing cycle. However, once every year, L submitted for K's approval a proposed plan for the management of the property over the next year. K actively participated in making important management decisions, such as where and whether a pre-commercial thinning should be conducted, whether the timber was adequately protected from fire and disease, whether fire lines needed to be plowed around the new trees, and whether boundary lines were properly maintained around the property. K inspected the property at least twice every year and assumed financial responsibility for the expenses of the tree farm. K also reported his income from the tree farm as earned income for purposes of the tax on self-employment income. Over a period of several years, K had harvested and marketed timber from certain tracts of the tree farm and had supervised replanting of the areas where trees were removed. K's history of harvesting, marketing, and replanting of trees showed him to be in the business of tree farming rather than merely passively investing in timber land. If the history of K's tree farm did not show such an active business operation, however, the tree farm would not qualify for special use valuation. In light of all these facts, K is deemed to have materially participated in the farm as his personal involvement amounted to more than managing an investment.
Example (8). Decedent M died on January 1, 1978, owning a farm for which special use valuation under section 2032A has been elected. M owned the farm real property for 15 years before his death. During the 4 years preceding M's death (January 1, 1974 through December 31, 1977), the farm was rented to N, a non-family member, and neither M nor any member of his family materially participated in the farming operation. From January 1, 1970, until December 31, 1973, both M and his daughter, O, materially participated in the farming operation. The material participation requirement of section 2032A(b)(1)(C)(ii) is not satisfied because material participation did not occur for periods aggregating at least 5 different years of the 8 years preceding M's death.

[T.D. 7710, 45 FR 50739, July 31, 1980, as amended by T.D. 7786, 46 FR 43037, Aug. 26, 1981]

§20.2032A-4   Method of valuing farm real property.

(a) In general. Unless the executor of the decedent's estate elects otherwise under section 2032A(e)(7)(B)(ii) or fails to document comparable rented farm property meeting the requirements of this section, the value of the property which is used for farming purposes and which is subject to an election under section 2032A is determined by—

(1) Subtracting the average annual state and local real estate taxes on actual tracts of comparable real property in the same locality from the average annual gross cash rental for that same comparable property, and

(2) Dividing the result so obtained by the average annual effective interest rate charged on new Federal land bank loans.

The computation of each average annual amount is to be based on the 5 most recent calendar years ending before the date of the decedent's death.

(b) Gross cash rental—(1) Generally. Gross cash rental is the total amount of cash received for the use of actual tracts of comparable farm real property in the same locality as the property being specially valued during the period of one calendar year. This amount is not diminished by the amount of any expenses or liabilities associated with the farm operation or the lease. See, paragraph (d) of this section for a definition of comparable property and rules for property on which buildings or other improvements are located and farms including multiple property types. Only rentals from tracts of comparable farm property which are rented solely for an amount of cash which is not contingent upon production are acceptable for use in valuing real property under section 2032A (e) (7). The rentals considered must result from an arm's-length transaction as defined in this section. Additionally, rentals received under leases which provide for payment solely in cash are not acceptable as accurate measures of cash rental value if involvement by the lessor (or a member of the lessor's family who is other than a lessee) in the management or operation of the farm to an extent which amounts to material participation under the rules of section 2032A is contemplated or actually occurs. In general, therefore, rentals for any property which qualifies for special use valuation cannot be used to compute gross cash rentals under this section because the total amount received by the lessor does not reflect the true cash rental value of the real property.

(2) Special rules—(i) Documentation required of executor. The executor must identify to the Internal Revenue Service actual comparable property for all specially valued property and cash rentals from that property if the decedent's real property is valued under section 2032A(e)(7). If the executor does not identify such property and cash rentals, all specially valued real property must be valued under the rules of section 2032A(e)(8) if special use valuation has been elected. See, however, §20.2032A-8(d) for a special rule for estates electing section 2032A treatment on or before August 30, 1980.

(ii) Arm's-length transaction required. Only those cash rentals which result from a lease entered into in an arm's-length transaction are acceptable under section 2032A(e)(7). For these purposes, lands leased from the Federal government, or any state or local government, which are leased for less than the amount that would be demanded by a private individual leasing for profit are not leased in an arm's-length transaction. Additionally, leases between family members (as defined in section 2032A(e)(2)) which do not provide a return on the property commensurate with that received under leases between unrelated parties in the locality are not acceptable under this section.

(iii) In-kind rents, statements of appraised rental value, and area averages. Rents which are paid wholly or partly in kind (e.g., crop shares) may not be used to determine the value of real property under section 2032A(e)(7). Likewise, appraisals or other statements regarding rental value as well as area-wide averages of rentals (i.e., those compiled by the United States Department of Agriculture) may not be used under section 2032A(e)(7) because they are not true measures of the actual cash rental value of comparable property in the same locality as the specially valued property.

(iv) Period for which comparable real property must have been rented solely for cash. Comparable real property rented solely for cash must be identified for each of the five calendar years preceding the year of the decedent's death if section 2032A(e)(7) is used to value the decedent's real property. Rentals from the same tract of comparable property need not be used for each of these 5 years, however, provided an actual tract of property meeting the requirements of this section is identified for each year.

(v) Leases under which rental of personal property is included. No adjustment to the rents actually received by the lessor is made for the use of any farm equipment or other personal property the use of which is included under a lease for comparable real property unless the lease specifies the amount of the total rental attributable to the personal property and that amount is reasonable under the circumstances.

(c) State and local real estate taxes. For purposes of the farm valuation formula under section 2032A(e)(7) state and local taxes are taxes which are assessed by a state or local government and which are allowable deductions under section 164. However, only those taxes on the comparable real property from which cash rentals are determined may be used in the formula valuation.

(d) Comparable real property defined. Comparable real property must be situated in the same locality as the specially valued property. This requirement is not to be viewed in terms of mileage or political divisions alone, but rather is to be judged according to generally accepted real property valuation rules. The determination of properties which are comparable is a factual one and must be based on numerous factors, no one of which is determinative. It will, therefore, frequently be necessary to value farm property in segments where there are different uses or land characteristics included in the specially valued farm. For example, if section 2032A(e)(7) is used, rented property on which comparable buildings or improvements are located must be identified for specially valued property on which buildings or other real property improvements are located. In cases involving multiple areas or land characteristics, actual comparable property for each segment must be used, and the rentals and taxes from all such properties combined (using generally accepted real property valuation rules) for use in the valuation formula given in this section. However, any premium or discount resulting from the presence of multiple uses or other characteristics in one farm is also to be reflected. All factors generally considered in real estate valuation are to be considered in determining comparability under section 2032A. While not intended as an exclusive list, the following factors are among those to be considered in determining comparability—

(1) Similarity of soil as determined by any objective means, including an official soil survey reflected in a soil productivity index;

(2) Whether the crops grown are such as would deplete the soil in a similar manner;

(3) The types of soil conservation techniques that have been practiced on the two properties;

(4) Whether the two properties are subject to flooding;

(5) The slope of the land;

(6) In the case of livestock operations, the carrying capacity of the land;

(7) Where the land is timbered, whether the timber is comparable to that on the subject property;

(8) Whether the property as a whole is unified or whether it is segmented, and where segmented, the availability of the means necessary for movement among the different segments;

(9) The number, types, and conditions of all buildings and other fixed improvements located on the properties and their location as it affects efficient management and use of property and value per se; and

(10) Availability of, and type of, transportation facilities in terms of costs and of proximity of the properties to local markets.

(e) Effective interest rate defined—(1) Generally. The annual effective interest rate on new Federal land bank loans is the average billing rate charged on new agricultural loans to farmers and ranchers in the farm credit district in which the real property to be valued under section 2032A is located, adjusted as provided in paragraph (e)(2) of this section. This rate is to be a single rate for each district covering the period of one calendar year and is to be computed to the nearest one-hundredth of one percent. In the event that the district billing rates of interest on such new agricultural loans change during a year, the rate for that year is to be weighted to reflect the portion of the year during which each such rate was charged. If a district's billing rate on such new agricultural loans varies according to the amount of the loan, the rate applicable to a loan in an amount resulting from dividing the total dollar amount of such loans closed during the year by the total number of the loans closed is to be used under section 2032A. Applicable rates may be obtained from the district director of internal revenue.

(2) Adjustment to billing rate of interest. The billing rate of interest determined under this paragraph is to be adjusted to reflect the increased cost of borrowing resulting from the required purchase of land bank association stock. For section 2032A purposes, the rate of required stock investment is the average of the percentages of the face amount of new agricultural loans to farmers and ranchers required to be invested in such stock by the applicable district bank during the year. If this percentage changes during a year, the average is to be adjusted to reflect the period when each percentage requirement was effective. The percentage is viewed as a reduction in the loan proceeds actually received from the amount upon which interest is charged.

(3) Example. The determination of the effective interest rate for any year may be illustrated as follows:

Example. District X of the Federal land bank system charged an 8 percent billed interest rate on new agricultural loans for 8 months of the year, 1976, and an 8.75 percent rate for 4 months of the year. The average billing rate was, therefore, 8.25 percent [(1.08 × 8/12) + (1.0875 × 4/12) = 1.0825]. The district required stock equal to 5 percent of the face amount of the loan to be purchased as a precondition to receiving a loan. Thus, the borrower only received 95 percent of the funds upon which he paid interest. The applicable annual interest rate for 1976 of 8.68 percent is computed as follows:

8.25 percent × 1.00 (total loan amount) = 8.25 percent (billed interest rate) divided by 0.95 (percent of loan proceeds received by borrower) = 8.68 percent (effective interest rate for 1976).

[T.D. 7710, 45 FR 50742, July 31, 1980]

§20.2032A-8   Election and agreement to have certain property valued under section 2032A for estate tax purposes.

(a) Election of special use valuation—(1) In general. An election under section 2032A is made as prescribed in paragraph (a)(3) of this section and on Form 706, United States Estate Tax Return. Once made, this election is irrevocable; however, see paragraph (d) of this section for a special rule for estates for which elections are made on or before August 30, 1980. Under section 2032A(a)(2), special use valuation may not reduce the value of the decedent's estate by more than $500,000. This election is available only if, at the time of death, the decedent was a citizen or resident of the United States.

(2) Elections to specially value less than all qualified real property included in an estate. An election under section 2032A need not include all real property included in an estate which is eligible for special use valuation, but sufficient property to satisfy the threshold requirements of section 2032A(b)(1)(B) must be specially valued under the election. If joint or undivided interests (e.g. interests as joint tenants or tenants in common) in the same property are received from a decedent by qualified heirs, an election with respect to one heir's joint or undivided interest need not include any other heir's interest in the same property if the electing heir's interest plus other property to be specially valued satisfy the requirements of section 2032A(b)(1)(B). If successive interests (e.g. life estates and remainder interests) are created by a decedent in otherwise qualified property, an election under section 2032A is available only with respect to that property (or portion thereof) in which qualified heirs of the decedent receive all of the successive interests, and such an election must include the interests of all of those heirs. For example, if a surviving spouse receives a life estate in otherwise qualified property and the spouse's brother receives a remainder interest in fee, no part of the property may be valued pursuant to an election under section 2032A. Where successive interests in specially valued property are created, remainder interests are treated as being received by qualified heirs only if such remainder interests are not contingent upon surviving a nonfamily member or are not subject to divestment in favor of a nonfamily member.

(3) Time and manner of making election. An election under this section is made by attaching to a timely filed estate tax return the agreement described in paragraph (c)(1) of this section and a notice of election which contains the following information:

(i) The decedent's name and taxpayer identification number as they appear on the estate tax return;

(ii) The relevant qualified use;

(iii) The items of real property shown on the estate tax return to be specially valued pursuant to the election (identified by schedule and item number);

(iv) The fair market value of the real property to be specially valued under section 2032A and its value based on its qualified use (both values determined without regard to the adjustments provided by section 2032A(b)(3)(B));

(v) The adjusted value (as defined in section 2032A(b)(3)(B)) of all real property which is used in a qualified use and which passes from the decedent to a qualified heir and the adjusted value of all real property to be specially valued;

(vi) The items of personal property shown on the estate tax return that pass from the decedent to a qualified heir and are used in a qualified use under section 2032A (identified by schedule and item number) and the total value of such personal property adjusted as provided under section 2032A(b)(3)(B);

(vii) The adjusted value of the gross estate, as defined in section 2032A(b)(3)(A);

(viii) The method used in determining the special value based on use;

(ix) Copies of written appraisals of the fair market value of the real property;

(x) A statement that the decedent and/or a member of his or her family has owned all specially valued real property for at least 5 years of the 8 years immediately preceding the date of the decedent's death;

(xi) Any periods during the 8-year period preceding the date of the decedent's death during which the decedent or a member of his or her family did not own the property, use it in a qualified use, or materially participate in the operation of the farm or other business within the meaning of section 2032A(e)(6);

(xii) The name, address, taxpayer identification number, and relationship to the decedent of each person taking an interest in each item of specially valued property, and the value of the property interests passing to each such person based on both fair market value and qualified use;

(xiii) Affidavits describing the activities constituting material participation and the identity of the material participant or participants; and

(xiv) A legal description of the specially valued property.

If neither an election nor a protective election is timely made, special use valuation is not available to the estate. See sections 2032A(d)(1), 6075(a), and 6081(a).

(b) Protective election. A protective election may be made to specially value qualified real property. The availability of special use valuation pursuant to this election is contingent upon values as finally determined (or agreed to following examination of a return) meeting the requirements of section 2032A. A protective election does not, however, extend the time for payment of any amount of tax. Rules for such extensions are contained in sections 6161, 6163, 6166, and 6166A. The protective election is to be made by a notice of election filed with a timely estate tax return stating that a protective election under section 2032A is being made pending final determination of values. This notice is to include the following information:

(1)  The decedent's name and taxpayer identification number as they appear on the estate tax return;

(2)  The relevant qualified use; and

(3)  The items of real and personal property shown on the estate tax return which are used in a qualified use, and which pass to qualified heirs (identified by schedule and item number).

If it is found that the estate qualifies for special use valuation based upon values as finally determined (or agreed to following examination of a return), an additional notice of election must be filed within 60 days after the date of such determination. This notice must set forth the information required under paragraph (a)(3) of this section and is to be attached, together with the agreement described in paragraph (c)(1) of this section, to an amended estate tax return. The new return is to be filed with the Internal Revenue Service office where the original return was filed.

(c)  Agreement to special valuation by persons with an interest in property—(1) In general. The agreement required under section 2032A (a)(1)(B) and (d)(2) must be executed by all parties who have any interest in the property being valued based on its qualified use as of the date of the decedent's death. In the case of a qualified heir, the agreement must express consent to personal liability under section 2032A(c) in the event of certain early dispositions of the property or early cessation of the qualified use. See section 2032A(c)(6). In the case of parties (other than qualified heirs) with interests in the property, the agreement must express consent to collection of any additional estate tax imposed under section 2032A(c) from the qualified property. The agreement is to be in a form that is binding on all parties having an interest in the property. It must designate an agent with satisfactory evidence of authority to act for the parties to the agreement in all dealings with the Internal Revenue Service on matters arising under section 2032A and must indicate the address of that agent.

(2)  Persons having an interest in designated property. An interest in property is an interest which, as of the date of the decedent's death, can be asserted under applicable local law so as to affect the disposition of the specially valued property by the estate. Any person in being at the death of the decedent who has any such interest in the property, whether present or future, or vested or contingent, must enter into the agreement. Included among such persons are owners of remainder and executory interests, the holders of general or special powers of appointment, beneficiaries of a gift over in default of exercise of any such power, co-tenants, joint tenants and holders of other undivided interests when the decedent held only a joint or undivided interest in the property or when only an undivided interest is specially valued, and trustees of trusts holding any interest in the property. An heir who has the power under local law to caveat (challenge) a will and thereby affect disposition of the property is not, however, considered to be a person with an interest in property under section 2032A solely by reason of that right. Likewise, creditors of an estate are not such persons solely by reason of their status as creditors.

(3)  Consent on behalf of interested party. If any person required to enter into the agreement provided for by paragraph (c)(1) either desires that an agent act for him or her or cannot legally bind himself or herself due to infancy or other incompetency, or to death before the election under section 2032A is timely exercised, a representative authorized under local law to bind such person in an agreement of this nature is permitted to sign the agreement on his or her behalf.

(4) Duties of agent designated in agreement. The Internal Revenue Service will contact the agent designated in the agreement under paragraph (c)(1) on all matters relating to continued qualification under section 2032A of the specially valued real property and on all matters relating to the special lien arising under section 6324B. It is the duty of the agent as attorney-in-fact for the parties with interests in the specially valued property to furnish the Service with any requested information and to notify the Service of any disposition or cessation of qualified use of any part of the property.

(d) Special rule for estates for which elections under section 2032A are made on or before August 30, 1980. An election to specially value real property under section 2032A that is made on or before August 30, 1980, may be revoked. To revoke an election, the executor must file a notice of revocation with the Internal Revenue Service office where the original estate tax return was filed on or before January 31, 1981 (or if earlier, the date on which the period of limitation for assessment expires). This notice of revocation must contain the decedent's name, date of death, and taxpayer identification number, and is to be accompanied by remittance of any additional amount of estate tax and interest determined to be due as a result of valuation of the qualified property based upon its fair market value. Elections that are made on or before August 30, 1980, that do not comply with this section as proposed on July 13, 1978 (43 FR 30070), and amended on December 21, 1978 (43 FR 59517), must be conformed to this final regulation by means of an amended return before the original estate tax return can be finally accepted by the Internal Revenue Service.

[T.D. 7710, 45 FR 50743, July 31, 1980, as amended by T.D. 7786, 46 FR 43037, Aug. 26, 1981]

§20.2033-1   Property in which the decedent had an interest.

(a) In general. The gross estate of a decedent who was a citizen or resident of the United States at the time of his death includes under section 2033 the value of all property, whether real or personal, tangible or intangible, and wherever situated, beneficially owned by the decedent at the time of his death. (For certain exceptions in the case of real property situated outside the United States, see paragraphs (a) and (c) of §20.2031-1.) Real property is included whether it came into the possession and control of the executor or administrator or passed directly to heirs or devisees. Various statutory provisions which exempt bonds, notes, bills, and certificates of indebtedness of the Federal Government or its agencies and the interest thereon from taxation are generally not applicable to the estate tax, since such tax is an excise tax on the transfer of property at death and is not a tax on the property transferred.

(b) Miscellaneous examples. A cemetery lot owned by the decedent is part of his gross estate, but its value is limited to the salable value of that part of the lot which is not designed for the interment of the decedent and the members of his family. Property subject to homestead or other exemptions under local law is included in the gross estate. Notes or other claims held by the decedent are likewise included even though they are cancelled by the decedent's will. Interest and rents accrued at the date of the decedent's death constitute a part of the gross estate. Similarly, dividends which are payable to the decedent or his estate by reason of the fact that on or before the date of the decedent's death he was a stockholder of record (but which have not been collected at death) constitute a part of the gross estate.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6684, 28 FR 11409, Oct. 24, 1963]

§20.2034-1   Dower or curtesy interests.

A decedent's gross estate includes under section 2034 any interest in property of the decedent's surviving spouse existing at the time of the decedent's death as dower or curtesy, or any interest created by statute in lieu thereof (although such other interest may differ in character from dower or curtesy). Thus, the full value of property is included in the decedent's gross estate, without deduction of such an interest of the surviving husband or wife, and without regard to when the right to such an interest arose.

§20.2036-1   Transfers with retained life estate.

(a) In general. A decedent's gross estate includes under section 2036 the value of any interest in property transferred by the decedent after March 3, 1931, whether in trust or otherwise, except to the extent that the transfer was for an adequate and full consideration in money or money's worth (see §20.2043-1), if the decedent retained or reserved—

(1) For his life;

(2) For any period not ascertainable without reference to his death (if the transfer was made after June 6, 1932); or

(3) For any period which does not in fact end before his death:

(i) The use, possession, right to income, or other enjoyment of the transferred property.

(ii) The right, either alone or in conjunction with any other person or persons, to designate the person or persons who shall possess or enjoy the transferred property or its income (except that, if the transfer was made before June 7, 1932, the right to designate must be retained by or reserved to the decedent alone).

(b) Meaning of terms. (1) A reservation by the decedent “for any period not ascertainable without reference to his death” may be illustrated by the following examples:

(i) A decedent reserved the right to receive the income from transferred property in quarterly payments, with the proviso that no part of the income between the last quarterly payment and the date of the decedent's death was to be received by the decedent or his estate; and

(ii) A decedent reserved the right to receive the income, annuity, or other payment from transferred property after the death of another person who was in fact enjoying the income, annuity, or other payment at the time of the decedent's death. In such a case, the amount to be included in the decedent's gross estate under this section does not include the value of the outstanding interest of the other person as determined in paragraphs (c)(1)(i) and (c)(2)(ii) of this section. See also, paragraphs (c)(1)(ii) Example 1 and (c)(2)(iv) Example 8 of this section. If the other person predeceased the decedent, the reservation by the decedent may be considered to be either for life, or for a period that does not in fact end before death.

(2) The “use, possession, right to the income, or other enjoyment of the transferred property” is considered as having been retained by or reserved to the decedent to the extent that the use, possession, right to the income, or other enjoyment is to be applied toward the discharge of a legal obligation of the decedent, or otherwise for his pecuniary benefit. The term “legal obligation” includes a legal obligation to support a dependent during the decedent's lifetime.

(3) The phrase “right *  *  * to designate the person or persons who shall possess or enjoy the transferred property or the income therefrom” includes a reserved power to designate the person or persons to receive the income from the transferred property, or to possess or enjoy nonincome-producing property, during the decedent's life or during any other period described in paragraph (a) of this section. With respect to such a power, it is immaterial (i) whether the power was exercisable alone or only in conjunction with another person or persons, whether or not having an adverse interest; (ii) in what capacity the power was exercisable by the decedent or by another person or persons in conjunction with the decedent; and (iii) whether the exercise of the power was subject to a contingency beyond the decedent's control which did not occur before his death (e.g., the death of another person during the decedent's lifetime). The phrase, however, does not include a power over the transferred property itself which does not affect the enjoyment of the income received or earned during the decedent's life. (See, however, section 2038 for the inclusion of property in the gross estate on account of such a power.) Nor does the phrase apply to a power held solely by a person other than the decedent. But, for example, if the decedent reserved the unrestricted power to remove or discharge a trustee at any time and appoint himself as trustee, the decedent is considered as having the powers of the trustee.

(c) Retained or reserved interest—(1) Amount included in gross estate—(i) In general. If the decedent retained or reserved an interest or right with respect to all of the property transferred by him, the amount to be included in his gross estate under section 2036 is the value of the entire property, less only the value of any outstanding income interest which is not subject to the decedent's interest or right and which is actually being enjoyed by another person at the time of the decedent's death. If the decedent retained or reserved an interest or right with respect to a part only of the property transferred by him, the amount to be included in his gross estate under section 2036 is only a corresponding proportion of the amount described in the preceding sentence. An interest or right is treated as having been retained or reserved if at the time of the transfer there was an understanding, express, or implied, that the interest or right would later be conferred. If this section applies to an interest retained by the decedent in a trust or otherwise and the terms of the trust or other governing instrument provide that, after the decedent's death, payments the decedent was receiving during life are to continue to be made to the decedent's estate for a specified period (as opposed to payments that were payable to the decedent prior to the decedent's death but were not actually paid until after the decedent's death), such payments that become payable after the decedent's death are not includible in the decedent's gross estate under section 2033 because they are properly reflected in the value of the trust corpus included under this section. Payments that become payable to the decedent prior to the decedent's date of death, but are not paid until after the decedent's date of death, are includible in the decedent's gross estate under section 2033.

(ii) Examples. The application of paragraph (c)(1)(i) of this section is illustrated in the following examples:

Example 1. Decedent (D) creates an irrevocable inter vivos trust. The terms of the trust provide that all of the trust income is to be paid to D and D's child, C, in equal shares during their joint lives and, on the death of the first to die of D and C, all of the trust income is to be paid to the survivor. On the death of the survivor of D and C, the remainder is to be paid to another individual, F. Subsequently, D dies survived by C. Fifty percent of the value of the trust corpus is includible in D's gross estate under section 2036(a)(1) because, under the terms of the trust, D retained the right to receive one-half of the trust income for D's life. In addition, the excess (if any) of the value of the remaining 50 percent of the trust corpus, over the present value of C's outstanding life estate in that 50 percent of trust corpus, also is includible in D's gross estate under section 2036(a)(1), because D retained the right to receive all of the trust income for such time as D survived C. If C had predeceased D, then 100 percent of the trust corpus would have been includible in D's gross estate.
Example 2. D transferred D's personal residence to D's child (C), but retained the right to use the residence for a term of years. D dies during the term. At D's death, the fair market value of the personal residence is includible in D's gross estate under section 2036(a)(1) because D retained the right to use the residence for a period that did not in fact end before D's death.

(2) Retained annuity, unitrust, and other income interests in trusts—(i) In general. This paragraph (c)(2) applies to a grantor's retained use of an asset held in trust or a retained annuity, unitrust, or other interest in any trust (other than a trust constituting an employee benefit) including without limitation the following (collectively referred to in this paragraph (c)(2) as “trusts”): Certain charitable remainder trusts (collectively CRTs) such as a charitable remainder annuity trust (CRAT) within the meaning of section 664(d)(1), a charitable remainder unitrust (CRUT) within the meaning of section 664(d)(2) or (d)(3), and any charitable remainder trust that does not qualify under section 664(d), whether because the CRT was created prior to 1969, there was a defect in the drafting of the CRT, there was no intention to qualify the CRT for the charitable deduction, or otherwise; other trusts established by a grantor (collectively GRTs) such as a grantor retained annuity trust (GRAT) paying out a qualified annuity interest within the meaning of §25.2702-3(b) of this chapter, a grantor retained unitrust (GRUT) paying out a qualified unitrust interest within the meaning of §25.2702-3(c) of this chapter; and various other forms of grantor retained income trusts (GRITs) whether or not the grantor's retained interest is a qualified interest as defined in section 2702(b), including without limitation a qualified personal residence trust (QPRT) within the meaning of §25.2702-5(c) of this chapter and a personal residence trust (PRT) within the meaning of §25.2702-5(b) of this chapter. If a decedent transferred property into such a trust and retained or reserved the right to use such property, or the right to an annuity, unitrust, or other interest in such trust with respect to the property decedent so transferred for decedent's life, any period not ascertainable without reference to the decedent's death, or for a period that does not in fact end before the decedent's death, then the decedent's right to use the property or the retained annuity, unitrust, or other interest (whether payable from income and/or principal) constitutes the retention of the possession or enjoyment of, or the right to the income from, the property for purposes of section 2036. The portion of the trust's corpus includible in the decedent's gross estate for Federal estate tax purposes is that portion of the trust corpus necessary to provide the decedent's retained use or retained annuity, unitrust, or other payment (without reducing or invading principal). In the case of a retained annuity or unitrust, the portion of the trust's corpus includible in the decedent's gross estate is that portion of the trust corpus necessary to generate sufficient income to satisfy the retained annuity or unitrust (without reducing or invading principal), using the interest rates provided in section 7520 and the adjustment factors prescribed in §20.2031-7 (or §20.2031-7A), if applicable. The computation is illustrated in paragraph (c)(2)(iv), Examples 1, 2, and 3 of this section. The portion of the trust's corpus includible in the decedent's gross estate under section 2036, however, shall not exceed the fair market value of the trust's corpus at the decedent's date of death.

(ii) Decedent's retained annuity following a current annuity interest of another person. If the decedent retained the right to receive an annuity or other payment (rather than income) after the death of the current recipient of that interest, then the amount includible in the decedent's gross estate under this section is the amount of trust corpus required to produce sufficient income to satisfy the entire annuity or other payment the decedent would have been entitled to receive if the decedent had survived the current recipient (thus, also including the portion of that entire amount payable to the decedent before the current recipient's death), reduced by the present value of the current recipient's interest. However, the amount includible shall not be less than the amount of corpus required to produce sufficient income to satisfy the annuity or other payment the decedent was entitled, at the time of the decedent's death, to receive for each year. In addition, in no event shall the amount includible exceed the value of the trust corpus on the date of death. Finally, in calculating the present value of the current recipient's interest, the exhaustion of trust corpus test described in §20.7520-3(b)(2) (exhaustion test) is not to be applied, even in cases where §20.7520-3(b)(2) would otherwise require it to be applied. The following steps implement this computation.

(A) Step 1: Determine the fair market value of the trust corpus on the decedent's date of death.

(B) Step 2: Determine, in accordance with paragraph (c)(2)(i) of this section, the amount of corpus required to generate sufficient income to pay the annuity, unitrust, or other payment (determined on the date of the decedent's death) payable to the decedent for the trust year in which the decedent's death occurred.

(C) Step 3: Determine, in accordance with paragraph (c)(2)(i) of this section, the amount of corpus required to generate sufficient income to pay the annuity, unitrust, or other payment that the decedent would have been entitled to receive for each trust year if the decedent had survived the current recipient.

(D) Step 4: Determine the present value of the current recipient's annuity, unitrust, or other payment (without applying the exhaustion test).

(E) Step 5: Reduce the amount determined in Step 3 by the amount determined in Step 4, but not to below the amount determined in Step 2.

(F) Step 6: The amount includible in the decedent's gross estate under this section is the lesser of the amounts determined in Step 5 and Step 1.

(iii) Graduated retained interests—(A) In general. For purposes of this section, a graduated retained interest is the grantor's reservation of a right to receive an annuity, unitrust, or other payment as described in paragraph (c)(2)(i) of this section, payable at least annually, that increases (but does not decrease) over a period of time, not more often than annually.

(B) Other definitions—(1) Base amount. The base amount is the amount of corpus required to generate the annuity, unitrust, or other payment payable for the trust year in which the decedent's death occurs. See paragraph (c)(2)(i) of this section for the calculation of the base amount.

(2) Periodic addition. The periodic addition in a graduated retained interest for each year after the year in which decedent's death occurs is the amount (if any) by which the annuity, unitrust, or other payment that would have been payable for that year if the decedent had survived exceeds the total amount of payments that would have been payable for the year immediately preceding that year. For example, assume the trust instrument provides that the grantor is to receive an annual annuity payable to the grantor or the grantor's estate for a 5-year term. The initial annual payment is $100,000, and each succeeding annual payment is to be 120 percent of the amount payable for the preceding year. Assuming the grantor dies in the second year of the trust (whether before or after the due date of the second annual payment), the periodic additions for years 3, 4, and 5 of the trust are as follows:

  (1)
Annual
payment
(2) Prior
year
payment
(1−2)
Periodic
addition
Year 3144,000120,00024,000
Year 4172,800144,00028,800
Year 5207,360172,80034,560

(3) Corpus amount. For each trust year in which a periodic addition occurs (increase year), the corpus amount is the amount of trust corpus which, starting from the decedent's date of death, is necessary to generate an amount of income sufficient to pay the periodic addition, beginning in the increase year and continuing in perpetuity, without reducing or invading principal. For each year with a periodic addition, the corpus amount required as of the decedent's date of death is the product of two factors: The first is the result of dividing the periodic addition (adjusted for payments made more frequently than annually, if applicable, and for payments due at the beginning, rather than the end, of a payment period (see Table K or J of §20.2031-7(d)(6)) by the section 7520 rate (periodic addition/rate)); and the second is 1 divided by the sum of 1 and the section 7520 rate raised to the T power (1/(1 + rate)^T). The second factor applies a present value discount to reflect the period beginning with the date of death and ending on the last day of the trust year immediately before the year for which the periodic addition is first payable.

(i) The corpus amount is determined as follows:

eCFR graphic er08no11.026.gif

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(ii) The adjustment factor, if applicable, is the factor for payments made more frequently than annually and for payments due at the beginning, rather than the end, of a calendar period (see Table K or J of §20.2031-7(d)(6)). T equals the time period in years from the decedent's date of death through the last day of the trust year immediately before the year for which the periodic addition is first payable.

(C) Amount includible. The amount includible in the gross estate in the case of a graduated retained interest is the sum of the base amount and the corpus amount for each year for which a periodic addition is first payable. The sum of these amounts represents the amount of trust principal that would be necessary to generate the annual payments that would have been paid to the decedent if the decedent had survived and had continued to receive the graduated retained interest. The amount of trust corpus includible in a decedent's gross estate under this section, however, shall not exceed the fair market value of the trust corpus on the decedent's date of death. The provisions of this section also apply to graduated retained interests in transferred property not held in trust.

(iv) Examples. The application of paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this section is illustrated in the following examples:

Example 1. (i) Decedent (D) transferred $100,000 to an inter vivos trust that qualifies as a CRAT under section 664(d)(1). The trust agreement provides for an annuity of $7,500 to be paid each year to D for D's life, then to D's child (C) for C's life, with the remainder to be distributed upon the survivor's death to N, a charitable organization described in sections 170(c), 2055(a), and 2522(a). The annuity is payable to D or C, as the case may be, annually on each December 31st. D dies in September 2006, survived by C who was then age 40. On D's death, the value of the trust assets was $300,000 and the section 7520 interest rate was 6 percent. D's executor does not elect to use the alternate valuation date.

(ii) The amount of corpus with respect to which D retained the right to the income, and thus the amount includible in D's gross estate under section 2036, is that amount of corpus necessary to yield the annual annuity payment to D (without reducing or invading principal). In this case, the formula for determining the amount of corpus necessary to yield the annual annuity payment to D is: annual annuity / section 7520 interest rate = amount includible under section 2036. The amount of corpus necessary to yield the annual annuity is $7,500 / .06 = $125,000. Therefore, $125,000 is includible in D's gross estate under section 2036(a)(1). (The result would be the same if D had retained an interest in the CRAT for a term of years and had died during the term. The result also would be the same if D had irrevocably relinquished D's annuity interest less than 3 years prior to D's death because of the application of section 2035.) If, instead, the trust agreement had provided that D could revoke C's annuity interest or change the identity of the charitable remainderman, see section 2038 with regard to the portion of the trust to be included in the gross estate on account of such a retained power to revoke. Under the facts presented, section 2039 does not apply to include any amount in D's gross estate by reason of this retained annuity. See §20.2039-1(e).

Example 2. (i) D transferred $100,000 to a GRAT in which D's annuity is a qualified interest described in section 2702(b). The trust agreement provides for an annuity of $12,000 per year to be paid to D for a term of ten years or until D's earlier death. The annuity amount is payable in twelve equal installments at the end of each month. At the expiration of the term of years or on D's earlier death, the remainder is to be distributed to D's child (C). D dies prior to the expiration of the ten-year term. On the date of D's death, the value of the trust assets is $300,000 and the section 7520 interest rate is 6 percent. D's executor does not elect to use the alternate valuation date.

(ii) The amount of corpus with respect to which D retained the right to the income, and thus the amount includible in D's gross estate under section 2036, is that amount of corpus necessary to yield the annual annuity payment to D (without reducing or invading principal). In this case, the formula for determining the amount of corpus necessary to yield the annual annuity payment to D is: annual annuity (adjusted for monthly payments) / section 7520 interest rate = amount includible under section 2036. The Table K adjustment factor for monthly annuity payments in this case is 1.0272. Thus, the amount of corpus necessary to yield the annual annuity is ($12,000 × 1.0272) / .06 = $205,440. Therefore, $205,440 is includible in D's gross estate under section 2036(a)(1). If, instead, the trust agreement had provided that the annuity was to be paid to D during D's life and to D's estate for the balance of the 10-year term if D died during that term, then the portion of trust corpus includible in D's gross estate would still be as calculated in this paragraph. It is not material whether payments are made to D's estate after D's death. Under the facts presented, section 2039 does not apply to include any amount in D's gross estate by reason of this retained annuity. See §20.2039-1(e).

Example 3. (i) In 2000, D created a CRUT within the meaning of section 664(d)(2). The trust instrument directs the trustee to hold, invest, and reinvest the corpus of the trust and to pay to D for D's life, and then to D's child (C) for C's life, in equal quarterly installments payable at the end of each calendar quarter, an amount equal to 6 percent of the fair market value of the trust as valued on December 15 of the prior taxable year of the trust. At the termination of the trust, the then-remaining corpus, together with any and all accrued income, is to be distributed to N, a charitable organization described in sections 170(c), 2055(a), and 2522(a). D dies in 2006, survived by C, who was then age 55. The value of the trust assets on D's death was $300,000. D's executor does not elect to use the alternate valuation date and, as a result, D's executor does not choose to use the section 7520 interest rate for either of the two months prior to D's death.

(ii) The amount of the corpus with respect to which D retained the right to the income, and thus the amount includible in D's gross estate under section 2036(a)(1), is that amount of corpus necessary to yield the unitrust payments. In this case, such amount of corpus is determined by dividing the trust's equivalent income interest rate by the section 7520 rate (which was 6 percent at the time of D's death). The equivalent income interest rate is determined by dividing the trust's adjusted payout rate by the excess of 1 over the adjusted payout rate. Based on §1.664-4(e)(3) of this chapter, the appropriate adjusted payout rate for the trust at D's death is 5.786 percent (6 percent × .964365). Thus, the equivalent income interest rate is 6.141 percent (5.786 percent / (1—5.786 percent)). The ratio of the equivalent interest rate to the assumed interest rate under section 7520 is 102.35 percent (6.141 percent / 6 percent). Because this exceeds 100 percent, D's retained payout interest exceeds a full income interest in the trust, and D effectively retained the income from all the assets transferred to the trust. Accordingly, because D retained for life an interest at least equal to the right to all income from all the property transferred by D to the CRUT, the entire value of the corpus of the CRUT is includible in D's gross estate under section 2036(a)(1). (The result would be the same if D had retained, instead, an interest in the CRUT for a term of years and had died during the term.) Under the facts presented, section 2039 does not apply to include any amount in D's gross estate by reason of D's retained unitrust interest. See §20.2039-1(e).

(iii) If, instead, D had retained the right to a unitrust amount having an adjusted payout for which the corresponding equivalent interest rate would have been less than the 6 percent assumed interest rate of section 7520, then a correspondingly reduced proportion of the trust corpus would be includible in D's gross estate under section 2036(a)(1). Alternatively, if the interest retained by D was instead only one-half of the 6 percent unitrust interest, then the amount included in D's estate would be the amount needed to produce a 3 percent unitrust interest. All of the results in this Example 3 would be the same if the trust had been a GRUT instead of a CRUT.

Example 4. During life, D established a 15-year GRIT for the benefit of individuals who are not members of D's family within the meaning of section 2704(c)(2). D retained the right to receive all of the net income from the GRIT, payable annually, during the GRIT's term. D dies during the GRIT's term. D's executor does not elect to use the alternate valuation date. In this case, the GRIT's corpus is includible in D's gross estate under section 2036(a)(1) because D retained the right to receive all of the income from the GRIT for a period that did not in fact end before D's death. If, instead, D had retained the right to receive 60 percent of the GRIT's net income, then 60 percent of the GRIT's corpus would have been includible in D's gross estate under section 2036. Under the facts presented, section 2039 does not apply to include any amount in D's gross estate by reason of D's retained interest. See §20.2039-1(e).
Example 5. In 2003, D transferred $10X to a pooled income fund that conforms to Rev. Proc. 88-53, 1988-2 CB 712 (1988) in exchange for 1 unit in the fund. D is to receive all of the income from that 1 unit during D's life. Upon D's death, D's child (C), is to receive D's income interest for C's life. In 2008, D dies. D's executor does not elect to use the alternate valuation date. In this case, the fair market value of D's 1 unit in the pooled income fund is includible in D's gross estate under section 2036(a)(1) because D retained the right to receive all of the income from that unit for a period that did not in fact end before D's death. See §601.601(d)(2)(ii)(b) of this chapter.
Example 6. D transferred D's personal residence to a trust that met the requirements of a qualified personal residence trust (QPRT) as set forth in §25.2702-5(c) of this chapter. Pursuant to the terms of the QPRT, D retained the right to use the residence for 10 years or until D's prior death. D dies before the end of the term. D's executor does not elect to use the alternate valuation date. In this case, the fair market value of the QPRT's assets on the date of D's death are includible in D's gross estate under section 2036(a)(1) because D retained the right to use the residence for a period that did not in fact end before D's death.
Example 7. (i) On November 1, year N, D transfers assets valued at $2,000,000 to a GRAT. Under the terms of the GRAT, the trustee is to pay to D an annuity for a 5-year term that is a qualified interest described in section 2702(b). The annuity amount is to be paid annually at the end of each trust year, on October 31st. The first annual payment is to be $100,000. Each succeeding payment is to be 120 percent of the amount paid in the preceding year. Income not distributed in any year is to be added to principal. If D dies during the 5-year term, the payments are to be made to D's estate for the balance of the GRAT term. At the end of the 5-year term, the trust is to terminate and the corpus is to be distributed to C, D's child. D dies on January 31st of the third year of the GRAT term. On the date of D's death, the value of the trust corpus is $3,200,000, the section 7520 interest rate is 6.8 percent, and the adjustment factor from Table K of §20.2031-7 is 1.0000. D's executor does not elect to value the gross estate as of the alternate valuation date pursuant to section 2032.

(ii) The amount includible in D's gross estate under section 2036(a)(1) as described in paragraph (c)(2)(iii)(C) of this section is determined and illustrated as follows:

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(iii) Specifically:

(A) Column A. First, determine the year of the trust term during which the decedent's death occurs, and the number of subsequent years remaining in the trust term for which the decedent retained or reserved an interest. In this example, D dies during year 3, with two additional years remaining in the term.

(B) Column B. Under the formula specified in the trust, the annuity payment to be made on October 31st of the 3rd year of the trust term is $144,000. Using that same formula, determine the annuity amounts for years 4 and 5.

(C) Column C. Determine the periodic addition for year 4 and year 5 by subtracting the annuity amount for the preceding year from the annuity amount for that year; the periodic addition for that year is the amount of the increase in the annuity amount for that year.

(D) Columns D through G for year 3. For the year of the decedent's death (year 3), determine the principal required to produce the annuity amount (Column D) by multiplying the annuity amount (Column B) by the adjustment factor (in this case 1.0000) and by dividing the product by the applicable interest rate under section 7520. Because this is the year of decedent's death and reflects the annuity amount payable to the decedent in that year, there is no deferral, so this is also the Base Amount (the amount of corpus required to produce the annuity for year 3) (Column G).

(E) Columns D through G for years 4 and 5. For each succeeding year of the trust term during which the periodic addition will not be payable until a year subsequent to the year of the decedent's death, determine the principal required to produce the periodic addition payable for that year (Column D) by multiplying the periodic addition (Column C) by the adjustment factor and by dividing the product by the applicable interest rate under section 7520. Compute the factors to reflect the length of the deferral period (Column E) and the present value (Column F) as described in paragraph (c)(2)(iii)(B)(3) of this section. Multiply the amount of corpus in Column D by the factors in Columns E and F to determine the Corpus Amount for that year (Column G).

(F) Column G total. The sum of the amounts in Column G represents the total amount includable in the gross estate (but not in excess of the fair market value of the trust on the decedent's date of death).

(iv) An illustration of the amount of trust corpus (as of the decedent's death) necessary to produce the scheduled payments is as follows:

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(v) A total corpus amount (as defined in paragraph (c)(2)(iii)(B)(3) of this section) of $2,973,866 constitutes the principal required as of decedent's date of death to produce (without reducing or invading principal) the annual payments that D would have received if D had survived and had continued to receive the retained annuity. Therefore, $2,973,866 of the trust corpus is includible in D's gross estate under section 2036(a)(1). The remaining $226,134 of the trust corpus is not includible in D's gross estate under section 2036(a)(1). The result would be the same if D's retained annuity instead had been payable to D for a term of 5 years, or until D's prior death, at which time the GRAT would have terminated and the trust corpus would have become payable to another.

(vi) If, instead, D's annuity was to have been paid on a monthly or quarterly basis, then the periodic addition would have to be adjusted as provided in paragraph (c)(2)(iii)(B)(3) of this section. Specifically, in Column D of the Table for years 4 and 5 in this example, the amount of the principal required would be computed by multiplying the periodic addition by the appropriate factor from Table K or J of §20.2031-7(d)(6) before dividing as indicated and computing the amounts in Columns E through G. In addition, Column D in year 3 also would have to be so adjusted. Under the facts presented, section 2039 does not apply to include any amount in D's gross estate by reason of this retained interest. See §20.2039-1(e).

Example 8. (i) D creates an irrevocable inter vivos trust. The terms of the trust provide that an annuity of $10,000 per year is to be paid to D and C, D's child, in equal shares during their joint lives. On the death of the first to die of D and C, the entire $10,000 annuity is to be paid to the survivor for life. On the death of the survivor of D and C, the remainder is to be paid to another individual, F. Subsequently, D dies survived by C. On D's date of death, the fair market value of the trust is $120,000 and the section 7520 rate is 7 percent. At the date of D's death, the amount of trust corpus needed to produce D's annuity interest ($5,000 per year) is $71,429 ($5,000/0.07). In addition, assume the present value of C's right to receive $5,000 annually for the remainder of C's life is $40,000. The portion of the trust corpus includible in D's gross estate under section 2036(a)(1) is $102,857, determined as follows:
(ii) Step 1: Fair market value of corpus$120,000
(iii) Step 2: Corpus required to produce D's date of death annuity ($5,000/0.07)71,429
(iv) Step 3: Corpus required to produce D's annuity if D had survived C ($10,000/0.07)142,857
(v) Step 4: Present value of C's interest40,000
(vi) Step 5: The amount determined in Step 3, reduced by the amount determined in Step 4, but not to below the amount determined in Step 2 ($142,857—$40,000, but not less than $71,429)102,857
(vii) Step 6: The lesser of the amounts determined in Steps 5 and 1 ($102,857 or $120,000)102,857

(3) Effective/applicability dates. Paragraphs (a) and (c)(1)(i) of this section are applicable to the estates of decedents dying after August 16, 1954. Paragraphs (c)(1)(ii) and (c)(2) of this section apply to the estates of decedents dying on or after July 14, 2008. All but the last two sentences at the end of paragraph (c)(1)(i) of this section are applicable to the estates of decedents dying after August 16, 1954. The first, second, and sixth sentences in paragraph (c)(2)(i) of this section and all but the introductory text, Example 7, and Example 8 of paragraph (c)(2)(iv) of this section are applicable to the estates of decedent's dying on or after July 14, 2008. Paragraph (b)(1)(ii) of this section, the last two sentences at the end of paragraph (c)(1)(i) of this section, Example 1 of paragraph (c)(1)(ii) of this section, the third, fourth, and fifth sentences in paragraph (c)(2)(i) of this section; paragraph (c)(2)(ii) of this section; paragraph (c)(2)(iii) of this section; and the introductory text, Example 7, and Example 8 of paragraph (c)(2)(iv) of this section are applicable to the estates of decedents dying on or after November 8, 2011.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6501, 25 FR 10869, Nov. 16, 1960; T.D. 9414, 73 FR 40177, July 14, 2008; 73 FR 44648, July 31, 2008; T.D. 9555, 76 FR 69128, Nov. 8, 2011]

§20.2037-1   Transfers taking effect at death.

(a) In general. A decedent's gross estate includes under section 2037 the value of any interest in property transferred by the decedent after September 7, 1916, whether in trust or otherwise, except to the extent that the transfer was for an adequate and full consideration in money or money's worth (see §20.2043-1), if—

(1) Possession or enjoyment of the property could, through ownership of the interest, have been obtained only by surviving the decedent,

(2) The decedent had retained a possibility (referred to in this section as a “reversionary interest”) that the property, other than the income alone, would return to the decedent or his estate or would be subject to a power of disposition by him, and

(3) The value of the reversionary interest immediately before the decedent's death exceeded 5 percent of the value of the entire property.

However, if the transfer was made before October 8, 1949, section 2037 is applicable only if the reversionary interest arose by the express terms of the instrument of transfer and not by operation of law (see paragraph (f) of this section). See also paragraph (g) of this section with respect to transfers made between November 11, 1935, and January 29, 1940. The provisions of section 2037 do not apply to transfers made before September 8, 1916.

(b) Condition of survivorship. As indicated in paragraph (a) of this section, the value of an interest in transferred property is not included in a decedent's gross estate under section 2037 unless possession or enjoyment of the property could, through ownership of such interest, have been obtained only by surviving the decedent. Thus, property is not included in the decedent's gross estate if, immediately before the decedent's death, possession or enjoyment of the property could have been obtained by any beneficiary either by surviving the decedent or through the occurrence of some other event such as the expiration of a term of years. However, if a consideration of the terms and circumstances of the transfer as a whole indicates that the “other event” is unreal and if the death of the decedent does, in fact, occur before the “other event”, the beneficiary will be considered able to possess or enjoy the property only by surviving the decedent. Notwithstanding the foregoing, an interest in transferred property is not includible in a decedent's gross estate under section 2037 if possession or enjoyment of the property could have been obtained by any beneficiary during the decedent's life through the exercise of a general power of appointment (as defined in section 2041) which in fact was exercisable immediately before the decedent's death. See examples (5) and (6) in paragraph (e) of this section.

(c) Retention of reversionary interest. (1) As indicated in paragraph (a) of this section, the value of an interest in transferred property is not included in a decedent's gross estate under section 2037 unless the decedent had retained a reversionary interest in the property, and the value of the reversionary interest immediately before the death of the decedent exceeded 5 percent of the value of the property.

(2) For purposes of section 2037, the term “reversionary interest” includes a possibility that property transferred by the decedent may return to him or his estate and a possibility that property transferred by the decedent may become subject to a power of disposition by him. The term is not used in a technical sense, but has reference to any reserved right under which the transferred property shall or may be returned to the grantor. Thus, it encompasses an interest arising either by the express terms of the instrument of transfer or by operation of law. (See, however, paragraph (f) of this section with respect to transfers made before October 8, 1949.) The term “reversionary interest” does not include rights to income only, such as the right to receive the income from a trust after the death of another person. (However, see section 2036 for the inclusion of property in the gross estate on account of such rights.) Nor does the term “reversionary interest” include the possibility that the decedent during his lifetime might have received back an interest in transferred property by inheritance through the estate of another person. Similarly, a statutory right of a spouse to receive a portion of whatever estate a decedent may leave at the time of his death is not a “reversionary interest”.

(3) For purposes of this section, the value of the decedent's reversionary interest is computed as of the moment immediately before his death, without regard to whether or not the executor elects the alternate valuation method under section 2032 and without regard to the fact of the decedent's death. The value is ascertained in accordance with recognized valuation principles for determining the value for estate tax purposes of future or conditional interests in property. (See §§20.2031-1, 20.2031-7, and 20.2031-9). For example, if the decedent's reversionary interest was subject to an outstanding life estate in his wife, his interest is valued according to the actuarial rules set forth in §20.2031-7. On the other hand, if the decedent's reversionary interest was contingent on the death of his wife without issue surviving and if it cannot be shown that his wife is incapable of having issue (so that his interest is not subject to valuation according to the actuarial rules in §20.2031-7), his interest is valued according to the general rules set forth in §20.2031-1. A possibility that the decedent may be able to dispose of property under certain conditions is considered to have the same value as a right of the decedent to the return of the property under those same conditions.

(4) In order to determine whether or not the decedent retained a reversionary interest in transferred property of a value in excess of 5 percent, the value of the reversionary interest is compared with the value of the transferred property, including interests therein which are not dependent upon survivorship of the decedent. For example, assume that the decedent, A, transferred property in trust with the income payable to B for life and with the remainder payable to C if A predeceases B, but with the property to revert to A if B predeceases A. Assume further that A does, in fact, predecease B. The value of A's reversionary interest immediately before his death is compared with the value of the trust corpus, without deduction of the value of B's outstanding life estate. If, in the above example, A had retained a reversionary interest in one-half only of the trust corpus, the value of his reversionary interest would be compared with the value of one-half of the trust corpus, again without deduction of any part of the value of B's outstanding life estate.

(d) Transfers partly taking effect at death. If separate interests in property are transferred to one or more beneficiaries, paragraphs (a) to (c) of this section are to be separately applied with respect to each interest. For example, assume that the decedent transferred an interest in Blackacre to A which could be possessed or enjoyed only by surviving the decedent, and that the decedent transferred an interest in Blackacre to B which could be possessed or enjoyed only on the occurrence of some event unrelated to the decedent's death. Assume further that the decedent retained a reversionary interest in Blackacre of a value in excess of 5 percent. Only the value of the interest transferred to A is includible in the decedent's gross estate. Similar results would obtain if possession or enjoyment of the entire property could have been obtained only by surviving the decedent, but the decedent had retained a reversionary interest in a part only of such property.

(e) Examples. The provisions of paragraphs (a) to (d) of this section may be further illustrated by the following examples. It is assumed that the transfers were made on or after October 8, 1949; for the significance of this date, see paragraphs (f) and (g) of this section:

Example (1). The decedent transferred property in trust with the income payable to his wife for life and, at her death, remainder to the decedent's then surviving children, or if none, to the decedent or his estate. Since each beneficiary can possess or enjoy the property without surviving the decedent, no part of the property is includible in the decedent's gross estate under section 2037, regardless of the value of the decedent's reversionary interest. (However, see section 2033 for inclusion of the value of the reversionary interest in the decedent's gross estate.)
Example (2). The decedent transferred property in trust with the income to be accumulated for the decedent's life, and at his death, principal and accumulated income to be paid to the decedent's then surviving issue, or, if none, to A or A's estate. Since the decedent retained no reversionary interest in the property, no part of the property is includible in the decedent's gross estate, even though possession or enjoyment of the property could be obtained by the issue only by surviving the decedent.
Example (3). The decedent transferred property in trust with the income payable to his wife for life and with the remainder payable to the decedent or, if he is not living at his wife's death, to his daughter or her estate. The daughter cannot obtain possession or enjoyment of the property without surviving the decedent. Therefore, if the decedent's reversionary interest immediately before his death exceeded 5 percent of the value of the property, the value of the property, less the value of the wife's outstanding life estate, is includible in the decedent's gross estate.
Example (4). The decedent transferred property in trust with the income payable to his wife for life and with the remainder payable to his son or, if the son is not living at the wife's death, to the decedent or, if the decedent is not then living, to X or X's estate. Assume that the decedent was survived by his wife, his son, and X. Only X cannot obtain possession or enjoyment of the property without surviving the decedent. Therefore, if the decedent's reversionary interest immediately before his death exceeded 5 percent of the value of the property, the value of X's remainder interest (with reference to the time immediately after the decedent's death) is includible in the decedent's gross estate.
Example (5). The decedent transferred property in trust with the income to be accumulated for a period of 20 years or until the decedent's prior death, at which time the principal and accumulated income was to be paid to the decedent's son if then surviving. Assume that the decedent does, in fact, die before the expiration of the 20-year period. If, at the time of the transfer, the decedent was 30 years of age, in good health, etc., the son will be considered able to possess or enjoy the property without surviving the decedent. If, on the other hand, the decedent was 70 years of age at the time of the transfer, the son will not be considered able to possess or enjoy the property without surviving the decedent. In this latter case, if the value of the decedent's reversionary interest (arising by operation of law) immediately before his death exceeded 5 percent of the value of the property, the value of the property is includible in the decedent's gross estate.
Example (6). The decedent transferred property in trust with the income to be accumulated for his life and, at his death, the principal and accumulated income to be paid to the decedent's then surviving children. The decedent's wife was given the unrestricted power to alter, amend, or revoke the trust. Assume that the wife survived the decedent but did not, in fact, exercise her power during the decedent's lifetime. Since possession or enjoyment of the property could have been obtained by the wife during the decedent's lifetime under the exercise of a general power of appointment, which was, in fact, exercisable immediately before the decedent's death, no part of the property is includible in the decedent's gross estate.

(f) Transfers made before October 8, 1949. (1) Notwithstanding any provisions to the contrary contained in paragraphs (a) to (e) of this section, the value of an interest in property transferred by a decedent before October 8, 1949, is included in his gross estate under section 2037 only if the decedent's reversionary interest arose by the express terms of the instrument and not by operation of law. For example, assume that the decedent, on January 1, 1947, transferred property in trust with the income payable to his wife for the decedent's life, and, at his death, remainder to his then surviving descendants. Since no provision was made for the contingency that no descendants of the decedent might survive him, a reversion to the decedent's estate existed by operation of law. The descendants cannot obtain possession or enjoyment of the property without surviving the decedent. However, since the decedent's reversionary interest arose by operation of law, no part of the property is includible in the decedent's gross estate under section 2037. If, in the above example, the transfer had been made on or after October 8, 1949, and if the decedent's reversionary interest immediately before his death exceeded 5 percent of the value of the property, the value of the property would be includible in the decedent's gross estate.

(2) The decedent's reversionary interest will be considered to have arisen by the express terms of the instrument of transfer and not by operation of law if the instrument contains an express disposition which affirmatively creates the reversionary interest, even though the terms of the disposition do not refer to the decedent or his estate, as such. For example, where the disposition is, in its terms, to the next of kin of the decedent and such a disposition, under applicable local law, constitute a reversionary interest in the decedent's estate, the decedent's reversionary interest will be considered to have arisen by the express terms of the instrument of transfer and not by operation of law.

(g) Transfers made after November 11, 1935, and before January 29, 1940. The provisions of paragraphs (a) to (f) of this section are fully applicable to transfers made after November 11, 1935 (the date on which the Supreme Court decided Helvering v. St. Louis Union Trust Co. (296 U.S. 39) and Becker v. St. Louis Union Trust Co. (296 U.S. 48)), and before January 29, 1940 (the date on which the Supreme Court decided Helvering v. Hallock and companion cases (309 U.S. 106)), except that the value of an interest in property transferred between these dates is not included in a decedent's gross estate under section 2037 if—

(1) The Commissioner, whose determination shall be final, determines that the transfer is classifiable with the transfers involved in the St. Louis Union Trust Co. cases, rather than with the transfer involved in the case of Klein v. United States (283 U.S. 231), previously decided by the Supreme Court, and

(2) The transfer shall have been finally treated for all gift tax purposes, both as to the calendar year of the transfer and as to subsequent calendar years, as a gift in an amount measured by the value of the property undiminished by reason of a provision in the instrument of transfer by which the property, in whole or in part, is to revert to the decedent should he survive the donee or another person, or the reversion is conditioned upon some other contingency terminable by the decedent's death.

§20.2038-1   Revocable transfers.

(a) In general. A decedent's gross estate includes under section 2038 the value of any interest in property transferred by the decedent, whether in trust or otherwise, if the enjoyment of the interest was subject at the date of the decedent's death to any change through the exercise of a power by the decedent to alter, amend, revoke, or terminate, or if the decedent relinquished such a power in contemplation of death. However, section 2038 does not apply—

(1) To the extent that the transfer was for an adequate and full consideration in money or money's worth (see §20.2043-1);

(2) If the decedent's power could be exercised only with the consent of all parties having an interest (vested or contingent) in the transferred property, and if the power adds nothing to the rights of the parties under local law; or

(3) To a power held solely by a person other than the decedent. But, for example, if the decedent had the unrestricted power to remove or discharge a trustee at any time and appoint himself trustee, the decedent is considered as having the powers of the trustee. However, this result would not follow if he only had the power to appoint himself trustee under limited conditions which did not exist at the time of his death. (See last two sentences of paragraph (b) of this section.)

Except as provided in this paragraph, it is immaterial in what capacity the power was exercisable by the decedent or by another person or persons in conjunction with the decedent; whether the power was exercisable alone or only in conjunction with another person or persons, whether or not having an adverse interest (unless the transfer was made before June 2, 1924; see paragraph (d) of this section); and at what time or from what source the decedent acquired his power (unless the transfer was made before June 23, 1936; see paragraph (c) of this section). Section 2038 is applicable to any power affecting the time or manner of enjoyment of property or its income, even though the identity of the beneficiary is not affected. For example, section 2038 is applicable to a power reserved by the grantor of a trust to accumulate income or distribute it to A, and to distribute corpus to A, even though the remainder is vested in A or his estate, and no other person has any beneficial interest in the trust. However, only the value of an interest in property subject to a power to which section 2038 applies is included in the decedent's gross estate under section 2038.

(b) Date of existence of power. A power to alter, amend, revoke, or terminate will be considered to have existed at the date of the decedent's death even though the exercise of the power was subject to a precedent giving of notice or even though the alteration, amendment, revocation, or termination would have taken effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent's death notice had been given or the power had been exercised. In determining the value of the gross estate in such cases, the full value of the property transferred subject to the power is discounted for the period required to elapse between the date of the decedent's death and the date upon which the alteration, amendment, revocation, or termination could take effect. In this connection, see especially §20.2031-7. However, section 2038 is not applicable to a power the exercise of which was subject to a contingency beyond the decedent's control which did not occur before his death (e.g., the death of another person during the decedent's life). See, however, section 2036(a)(2) for the inclusion of property in the decedent's gross estate on account of such a power.

(c) Transfers made before June 23, 1936. Notwithstanding anything to the contrary in paragraphs (a) and (b) of this section, the value of an interest in property transferred by a decedent before June 23, 1936, is not included in his gross estate under section 2038 unless the power to alter, amend, revoke, or terminate was reserved at the time of the transfer. For purposes of this paragraph, the phrase “reserved at the time of the transfer” has reference to a power (arising either by the express terms of the instrument of transfer or by operation of law) to which the transfer was subject when made and which continued to the date of the decedent's death (see paragraph (b) of this section) to be exercisable by the decedent alone or by the decedent in conjunction with any other person or persons. The phrase also has reference to any understanding, express or implied, had in connection with the making of the transfer that the power would later be created or conferred.

(d) Transfers made before June 2, 1924. Notwithstanding anything to the contrary in paragraphs (a) to (c) of this section, if an interest in property was transferred by a decedent before the enactment of the Revenue Act of 1924. (June 2, 1924, 4:01 p.m., eastern standard time), and if a power reserved by the decedent to alter, amend, revoke, or terminate was exercisable by the decedent only in conjunction with a person having a substantial adverse interest in the transferred property, or in conjunction with several persons some or all of whom held such an adverse interest, there is included in the decedent's gross estate only the value of any interest or interests held by a person or persons not required to joint in the exercise of the power plus the value of any insubstantial adverse interest or interests of a person or persons required to join in the exercise of the power.

(e) Powers relinquished in contemplation of death—(1) In general. If a power to alter, amend, revoke, or terminate would have resulted in the inclusion of an interest in property in a decedent's gross estate under section 2038 if it had been held until the decedent's death, the relinquishment of the power in contemplation of the decedent's death within 3 years before his death results in the inclusion of the same interest in property in the decedent's gross estate, except to the extent that the power was relinquished for an adequate and full consideration in money or money's worth (see §20.2043-1). For the meaning of the phrase “in contemplation of death”, see paragraph (c) of §20.2035-1.

(2) Transfers before June 23, 1936. In the case of a transfer made before June 23, 1936, section 2038 applies only to a relinquishment made by the decedent. However, in the case of a transfer made after June 22, 1936, section 2038 also applies to a relinquishment made by a person or persons holding the power in conjunction with the decedent, if the relinquishment was made in contemplation of the decedent's death and had the effect of extinguishing the power.

(f) Effect of disability to relinquish power in certain cases. Notwithstanding anything to the contrary in paragraphs (a) through (e) of this section the provisions of this section do not apply to a transfer if—

(1) The relinquishment on or after January 1, 1940, and on or before December 31, 1947, of the power would, by reason of section 1000(e), of the Internal Revenue Code of 1939, be deemed not a transfer of property for the purpose of the gift tax under chapter 4 of the Internal Revenue Code of 1939, and

(2) The decedent was, for a continuous period beginning on or before September 30, 1947, and ending with his death, after August 16, 1954, under a mental disability to relinquish a power.

For the purpose of the foregoing provision, the term “mental disability” means mental incompetence, in fact, to release the power whether or not there was an adjudication of incompetence. Such provision shall apply even though a guardian could have released the power for the decedent. No interest shall be allowed or paid on any overpayment allowable under section 2038(c) with respect to amounts paid before August 7, 1959.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 4985, May 29, 1962]

§20.2039-1   Annuities.

(a) In general. A decedent's gross estate includes under section 2039(a) and (b) the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent under certain agreements or plans to the extent that the value of the annuity or other payment is attributable to contributions made by the decedent or his employer. Sections 2039(a) and (b), however, have no application to an amount which constitutes the proceeds of insurance under a policy on the decedent's life. Paragraph (b) of this section describes the agreements or plans to which section 2039(a) and (b) applies; paragraph (c) of this section provides rules for determining the amount includible in the decedent's gross estate; paragraph (d) of this section distinguishes proceeds of life insurance; and paragraph (e) of this section distinguishes annuity, unitrust, and other interests retained by a decedent in certain trusts.

The fact that an annuity or other payment is not includible in a decedent's gross estate under section 2039(a) and (b) does not mean that it is not includible under some other section of part III of subchapter A of chapter 11. However, see section 2039(c) and (d) and §20.2039-2 for rules relating to the exclusion from a decedent's gross estate of annuities and other payments under certain “qualified plans.” Further, the fact that an annuity or other payment may be includible under section 2039(a) will not preclude the application of another section of chapter 11 with regard to that interest. For annuity interests in trust, see paragraph (e)(1) of this section.

(b) Agreements or plans to which section 2039 (a) and (b) applies. (1) Section 2039 (a) and (b) applies to the value of an annuity or other payment receivable by any beneficiary under any form of contract or agreement entered into after March 3, 1931, under which—

(i) An annuity or other payment was payable to the decedent, either alone or in conjunction with another person or persons, for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death, or

(ii) The decedent possessed, for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death, the right to receive such an annuity or other payment, either alone or in conjunction with another person or persons.

The term “annuity or other payment” as used with respect to both the decedent and the beneficiary has reference to one or more payments extending over any period of time. The payments may be equal or unequal, conditional or uncondititional, periodic or sporadic. The term “contract or agreement” includes any arrangement, understanding or plan, or any combination of arrangements, understandings or plans arising by reason of the decedent's employment. An annuity or other payment “was payable” to the decedent if, at the time of his death, the decedent was in fact receiving an annuity or other payment, whether or not he had an enforceable right to have payments continued. The decedent “possessed the right to receive” an annuity or other payment if, immediately before his death, the decedent had an enforceable right to receive payments at some time in the future, whether or not, at the time of his death, he had a present right to receive payments. In connection with the preceding sentence, the decedent will be regarded as having had “an enforceable right to receive payments at some time in the future” so long as he had complied with his obligations under the contract or agreement up to the time of his death. For the meaning of the phrase “for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death”, see section 2036 and §20.2036-1.

(2) The application of this paragraph is illustrated and more fully explained in the following examples. In each example: (i) It is assumed that all transactions occurred after March 3, 1931, and (ii) the amount stated to be includible in the decedent's gross estate is determined in accordance with the provisions of paragraph (c) of this section.

Example (1). The decedent purchased an annuity contract under the terms of which the issuing company agreed to pay an annuity to the decedent for his life and, upon his death, to pay a specified lump sum to his designated beneficiary. The decedent was drawing his annuity at the time of his death. The amount of the lump sum payment to the beneficiary is includible in the decedent's gross estate under section 2039 (a) and (b).
Example (2). Pursuant to a retirement plan, the employer made contributions to a fund which was to provide the employee, upon his retirement at age 60, with an annuity for life, and which was to provide the employee's wife, upon his death after retirement, with a similar annuity for life. The benefits under the plan were completely forfeitable during the employee's life, but upon his death after retirement, the benefits to the wife were forfeitable only upon her remarriage. The employee had no right to originally designate or to ever change the employer's designation of the surviving beneficiary. The retirement plan at no time met the requirements of section 401(a) (relating to qualified plans). Assume that the employee died at age 61 after the employer started payment of his annuity as described above. The value of the wife's annuity is includible in the decedent's gross estate under section 2039 (a) and (b). Includibility in this case is based on the fact that the annuity to the decedent “was payable” at the time of his death. The fact that the decedent's annuity was forfeitable is of no consequence since, at the time of his death, he was in fact receiving payments under the plan. Nor is it important that the decedent had no right to choose the surviving beneficiary. The element of forfeitability in the wife's annuity may be taken into account only with respect to the valuation of the annuity in the decedent's gross estate.
Example (3). Pursuant to a retirement plan, the employer made contributions to a fund which was to provide the employee, upon his retirement at age 60, with an annuity of $100 per month for life, and which was to provide his designated beneficiary, upon the employee's death after retirement, with a similar annuity for life. The plan also provided that (a) upon the employee's separation from service before retirement, he would have a nonforfeitable right to receive a reduced annuity starting at age 60, and (b) upon the employee's death before retirement, a lump sum payment representing the amount of the employer's contributions credited to the employee's account would be paid to the designated beneficiary. The plan at no time met the requirements of section 401(a) (relating to qualified plans). Assume that the employee died at age 49 and that the designated beneficiary was paid the specified lump sum payment. Such amount is includible in the decedent's gross estate under section 2039 (a) and (b). Since immediately before his death, the employee had an enforceable right to receive an annuity commencing at age 60, he is considered to have “possessed the right to receive” an annuity as that term is used in section 2039 (a). If, in this example, the employee would not be entitled to any benefits in the event of his separation from service before retirement for any reason other than death, the result would be the same so long as the decedent had complied with his obligations under the contract up to the time of his death. In such case, he is considered to have had, immediately before his death, an enforceable right to receive an annuity commencing at age 60.
Example (4). Pursuant to a retirement plan, the employee made contributions to a fund which was to provide the employee, upon his retirement at age 60, with an annuity for life, and which was to provide his designated beneficiary, upon the employee's death after retirement, with a similar annuity for life. The plan provided, however, that no benefits were payable in the event of the employee's death before retirement. The retirement plan at no time met the requirements of section 401(a) (relating to qualified plans). Assume that the employee died at age 59 but that the employer nevertheless started payment of an annuity in a slightly reduced amount to the designated beneficiary. The value of the annuity is not includible in the decedent's gross estate under section 2039 (a) and (b). Since the employee died before reaching the retirement age, the employer was under no obligation to pay the annuity to the employee's designated beneficiary. Therefore, the annuity was not paid under a “contract or agreement” as that term is used in section 2039 (a). If, however, it can be established that the employer has consistently paid an annuity under such circumstances, the annuity will be considered as having been paid under a “contract or agreement”.
Example (5). The employer made contributions to a retirement fund which were credited to the employee's individual account. Under the plan, the employee was to receive one-half the amount credited to his account upon his retirement at age 60, and his designated beneficiary was to receive the other one-half upon the employee's death after retirement. If the employee should die before reaching the retirement age, the entire amount credited to his account at such time was to be paid to the designated beneficiary. The retirement plan at no time met the requirements of section 401(a) (relating to qualified plans). Assume that the employee received one-half the amount credited to his account upon reaching the retirement age and that he died shortly thereafter. Since the employee received all that he was entitled to receive under the plan before his death, no amount was payable to him for his life or for any period not ascertainable without reference to his death, or for any period which did not in fact end before his death. Thus, the amount of the payment to the designated beneficiary is not includible in the decedent's gross estate under section 2039 (a) and (b). If, in this example, the employee died before reaching the retirement age, the amount of the payment to the designated beneficiary would be includible in the decedent's gross estate under section 2039 (a) and (b). In this latter case, the decedent possessed the right to receive lump sum payment for a period which did not in fact end before his death.
Example (6). The employer made contributions to two different funds set up under two different plans. One plan was to provide the employee upon his retirement at age 60, with an annuity for life, and the other plan was to provide the employee's designated beneficiary, upon the employee's death, with a similar annuity for life. Each plan was established at a different time and each plan was administered separately in every respect. Neither plan at any time met the requirements of section 401(a) (relating to qualified plans). The value of the designated beneficiary's annuity is includible in the employee's gross estate. All rights and benefits accruing to an employee and to others by reason of the employment (except rights and benefits accruing under certain plans meeting the requirements of section 401(a) (see §20.2039-2)) are considered together in determining whether or not section 2039 (a) and (b) applies. The scope of section 2039 (a) and (b) cannot be limited by indirection.

(c) Amount includible in the gross estate. The amount to be included in a decedent's gross estate under section 2039 (a) and (b) is an amount which bears the same ratio to the value at the decedent's death of the annuity or other payment receivable by the beneficiary as the contribution made by the decedent, or made by his employer (or former employer) for any reason connected with his employment, to the cost of the contract or agreement bears to its total cost. In applying this ratio, the value at the decedent's death of the annuity or other payment is determined in accordance with the rules set forth in §§20.2031-1, 20.2031-7, 20.2031-8, and 20.2031-9. The application of this paragraph may be illustrated by the following examples:

Example (1). On January 1, 1945, the decedent and his wife each contributed $15,000 to the purchase price of an annuity contract under the terms of which the issuing company agreed to pay an annuity to the decedent and his wife for their joint lives and to continue the annuity to the survivor for his life. Assume that the value of the survivor's annuity at the decedent's death (computed under §20.2031-8) is $20,000. Since the decedent contributed one-half of the cost of the contract, the amount to be included in his gross estate under section 2039 (a) and (b) is $10,000.
Example (2). Under the terms of an employment contract entered into on January 1, 1945, the employer and the employee made contributions to a fund which was to provide the employee, upon his retirement at age 60, with an annuity for life, and which was to provide his designated beneficiary, upon the employee's death after retirement, with a similar annuity for life. The retirement fund at no time formed part of a plan meeting the requirements of section 401(a) (relating to qualified plans). Assume that the employer and the employee each contributed $5,000 to the retirement fund. Assume further, that the employee died after retirement at which time the value of the survivor's annuity was $8,000. Since the employer's contributions were made by reason of the decedent's employment, the amount to be included in his gross estate under section 2039 (a) and (b) is the entire $8,000. If, in the above example, only the employer made contributions to the fund, the amount to be included in the gross estate would still be $8,000.

(d) Insurance under policies on the life of the decedent. If an annuity or other payment receivable by a beneficiary under a contract or agreement is in substance the proceeds of insurance under a policy on the life of the decedent, section 2039 (a) and (b) does not apply. For the extent to which such an annuity or other payment is includable in a decedent's gross estate, see section 2042 and §20.2042-1. A combination annuity contract and life insurance policy on the decedent's life (e.g., a “retirement income” policy with death benefits) which matured during the decedent's lifetime so that there was no longer an insurance element under the contract at the time of the decedent's death is subject to the provisions of section 2039 (a) and (b). On the other hand, the treatment of a combination annuity contract and life insurance policy on the decedent's life which did not mature during the decedent's lifetime depends upon the nature of the contract at the time of the decedent's death. The nature of the contract is generally determined by the relation of the reserve value of the policy to the value of the death benefit at the time of the decedent's death. If the decedent dies before the reserve value equals the death benefit, there is still an insurance element under the contract. The contract is therefore considered, for estate tax purposes, to be an insurance policy subject to the provisions of section 2042. However, if the decedent dies after the reserve value equals the death benefit, there is no longer an insurance element under the contract. The contract is therefore considered to be a contract for an annuity or other payment subject to the provisions of section 2039 (a) and (b) or some other section of Part III of Subchapter A of Chapter 11. Notwithstanding the relation of the reserve value to the value of the death benefit, a contract under which the death benefit could never exceed the total premiums paid, plus interest, contains no insurance element.

Example. Pursuant to a retirement plan established January 1, 1945, the employer purchased a contract from an insurance company which was to provide the employee, upon his retirement at age 65, with an annuity of $100 per month for life, and which was to provide his designated beneficiary, upon the employee's death after retirement, with a similar annuity for life. The contract further provided that if the employee should die before reaching the retirement age, a lump sum payment of $20,000 would be paid to his designated beneficiary in lieu of the annuity described above. The plan at no time met the requirements of section 401(a) (relating to qualified plans). Assume that the reserve value of the contract at the retirement age would be $20,000. If the employee died after reaching the retirement age, the death benefit to the designated beneficiary would constitute an annuity, the value of which would be includable in the employee's gross estate under section 2039 (a) and (b). If, on the other hand, the employee died before reaching his retirement age, the death benefit to the designated beneficiary would constitute insurance under a policy on the life of the decedent since the reserve value would be less than the death benefit. Accordingly, its includability would depend upon section 2042 and §20.2042-1.

(e) No application to certain trusts. Section 2039 shall not be applied to include in a decedent's gross estate all or any portion of a trust (other than a trust constituting an employee benefit, but including those described in the following sentence) if the decedent retained a right to use property of the trust or retained an annuity, unitrust, or other interest in the trust, in either case as described in section 2036. Such trusts include without limitation the following (collectively referred to in this paragraph (e) as “trusts”): Certain charitable remainder trusts (collectively CRTs) such as a charitable remainder annuity trust (CRAT) within the meaning of section 664(d)(1), a charitable remainder unitrust (CRUT) within the meaning of section 664(d)(2) or (d)(3), and any other charitable remainder trust that does not qualify under section 664(d), whether because the CRT was created prior to 1969, there was a defect in the drafting of the CRT, there was no intention to qualify the CRT for the charitable deduction, or otherwise; other trusts established by a grantor (collectively GRTs) such as a grantor retained annuity trust (GRAT) paying out a qualified annuity interest within the meaning of §25.2702-3(b) of this chapter, a grantor retained unitrust (GRUT) paying out a qualified unitrust interest within the meaning of §25.2702-3(c) of this chapter; and various forms of grantor retained income trusts (GRITs) whether or not the grantor's retained interest is a qualified interest as defined in section 2702(b), including without limitation a qualified personal residence trust (QPRT) within the meaning of §25.2702-5(c) of this chapter and a personal residence trust (PRT) within the meaning of §25.2702-5(b) of this chapter. For purposes of determining the extent to which a retained interest causes all or a portion of a trust to be included in a decedent's gross estate, see §20.2036-1(c)(1), (2), and (3).

(f) Effective/applicability dates. The first, second, and fourth sentences in paragraph (a) of this section are applicable to the estates of decedents dying after August 16, 1954. The fifth sentence of paragraph (a) of this section is applicable to the estates of decedents dying on or after October 27, 1972, and to the estates of decedents for which the period for filing a claim for credit or refund of an estate tax overpayment ends on or after October 27, 1972. The third, sixth, and seventh sentences of paragraph (a) of this section and all of paragraph (e) of this section are applicable to the estates of decedents dying on or after July 14, 2008.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7416, 41 FR 14514, Apr. 6, 1976; T.D. 9414, 73 FR 40178, July 14, 2008]

§20.2039-1T   Limitations and repeal of estate tax exclusion for qualified plans and individual retirement plans (IRAs) (temporary).

Q-1: Are there any exceptions to the general effective dates of the $100,000 limitation and the repeal of the estate tax exclusion for the value of interests under qualified plans and IRAs described in section 2039 (c) and (e)?

A-1: (a) Yes. Section 245 of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) limited the estate tax exclusion to $100,000 for estates of decedents dying after December 31, 1982. Section 525 of the Tax Reform Act of 1984 (TRA of 1984) repealed the exclusion for estates of decedents dying after December 31, 1984.

(b) Section 525(b)(3) of the TRA of 1984 amended section 245 of TEFRA to provide that the $100,000 limitation on the exclusion for the value of a decedent's interest in a plan or IRA will not apply to the estate of any decedent dying after December 31, 1982, to the extent that the decedent-participant was in pay status on December 31, 1982, with respect to such interest and irrevocably elected the form of benefit payable under the plan or IRA (including the form of any survivor benefits) with respect to such interest before January 1, 1983.

(c) Similarly, the TRA of 1984 provides that the repeal of the estate tax exclusion for the value of a decedent's interest in a plan or IRA will not apply to the estate of a decedent dying after December 31, 1984, to the extent that the decedent-participant was in pay status on December 31, 1984, with respect to such interest and irrevocably elected the form of benefit payable under the plan or IRA (including the form of any survivor benefits) with respect to such interest before July 18, 1984.

Q-2: What is the meaning of “in pay status” on the applicable date?

A-2: A participant was in pay status on the applicable date with respect to a portion of his or her interest in a plan or IRA if such portion is to be paid in a benefit form that has been elected on or before such date and the participant has received, on or before such date, at least one payment under such benefit form.

Q-3: What is required for an election of the form of benefit payable under the plan to have been irrevocable as of any applicable date?

A-3: As of any applicable date, an election of the form of benefit payable under a plan is irrevocable if, as of such date, it was a written irrevocable election that, with respect to all payments to be received after such date, specified the form of distribution (e.g., lump sum, level dollar annuity, formula annuity) and the period over which the distribution would be made (e.g., single life, joint and survivor, term certain). An election is not irrevocable as of any applicable date if, on or after such date, the form or period of the distribution could be determined or altered by any person or persons. An election does not fail to be irrevocable as of an applicable date merely because the beneficiaries were not designated as of such date or could be changed after such date. If any interest in any IRA may not, by law or contract, be subject to an irrevocable election described in this section, any election of the form of benefit payable under the IRA does not satisfy the requirement that an irrevocable election have been made.

[T.D. 8073, 51 FR 4335, Feb. 4, 1986]

§20.2039-2   Annuities under “qualified plans” and section 403(b) annuity contracts.

(a) Section 2039(c) exclusion. In general, in the case of a decedent dying after December 31, 1953, the value of an annuity or other payment receivable under a plan or annuity contract described in paragraph (b) of this section is excluded from the decedent's gross estate to the extent provided in paragraph (c) of this section. In the case of a plan described in paragraph (b) (1) or (2) of this section (a “qualified plan”), the exclusion is subject to the limitation described in §20.2039-3 (relating to lump sum distributions paid with respect to a decedent dying after December 31, 1976, and before January 1, 1979) or §20.2039-4 (relating to lump sum distributions paid with respect to a decedent dying after December 31, 1978).

(b) Plans and annuity contracts to which section 2039(c) applies. Section 2039(c) excludes from a decedent's gross estate, to the extent provided in paragraph (c) of this section, the value of an annuity or other payment receivable by any beneficiary (except the value of an annuity or other payment receivable by or for the benefit of the decedent's estate) under—

(1) An employees' trust (or under a contract purchased by an employees' trust) forming part of a pension, stock bonus, or profit-sharing plan which, at the time of the decedent's separation from employment (whether by death or otherwise), or at the time of the earlier termination of the plan, met the requirements of section 401(a);

(2) A retirement annuity contract purchased by an employer (and not by an employees' trust) pursuant to a plan which, at the time of decedent's separation from employment (by death or otherwise), or at the time of the earlier termination of the plan, was a plan described in section 403(a);

(3) In the case of a decedent dying after December 31, 1957, a retirement annuity contract purchased for an employee by an employer which, for its taxable year in which the purchase occurred, is an organization referred to in section 170(b)(1)(A) (ii) or (iv) or which is a religious organization (other than a trust) and is exempt from tax under section 501(a);

(4) In the case of a decedent dying after December 31, 1965, an annuity under Chapter 73 of title 10 of the United States Code (10 U.S.C. 1431, et seq.); or

(5) In the case of a decedent dying after December 31, 1962, a bond purchase plan described in section 405.

For the meaning of the term “annuity or other payment”, see paragraph (b) of §20.2039-1. For the meaning of the phrase “receivable by or for the benefit of the decedent's estate”, see paragraph (b) of §20.2042-1. The application of this paragraph may be illustrated by the following examples in each of which it is assumed that the amount stated to be excludable from the decedent's gross estate is determined in accordance with paragraph (c) of this section:

Example (1). Pursuant to a pension plan, the employer made contributions to a trust which was to provide the employee, upon his retirement at age 60, with an annuity for life, and which was to provide his wife, upon the employee's death after retirement, with a similar annuity for life. At the time of the employee's retirement, the pension trust formed part of a plan meeting the requirements of section 401(a). Assume that the employee died at age 61 after the trustee started payment of his annuity as described above. Since the wife's annuity was receivable under a qualified pension plan, no part of the value of such annuity is includable in the decedent's gross estate by reason of the provisions of section 2039(c). If, in this example, the employer provided other benefits under nonqualified plans, the result would be the same since the exclusion under section 2039(c) is confined to the benefits provided for under the qualified plan.
Example (2). Pursuant to a profit-sharing plan, the employer made contributions to a trust which were allocated to the employee's individual account. Under the plan, the employee would, upon retirement at age 60, receive a distribution of the entire amount credited to the account. If the employee should die before reaching retirement age, the amount credited to the account would be distributed to the employee's designated beneficiary. Assume that the employee died before reaching the retirement age and that at such time the plan met the requirements of section 401(a). Since the payment to the designated beneficiary is receivable under a qualified profit-sharing plan, the provisions of section 2039(c) apply. However, if the payment is a lump sum distribution to which §20.2039-3 or §20.2039-4 applies, the payment is excludable from the decedent's gross estate only as provided in such section.
Example (3). Pursuant to a pension plan, the employer made contributions to a trust which were used by the trustee to purchase a contract from an insurance company for the benefit of an employee. The contract was to provide the employee, upon retirement at age 65, with an annuity of $100 per month for life, and was to provide the employee's designated beneficiary upon the employee's death after retirement, with a similar annuity for life. The contract further provided that if the employee should die before reaching retirement age, a lump sum payment equal to the greater of (a) $10,000 or (b) the reserve value of the policy would be paid to the designated beneficiary in lieu of the annuity. Assume that the employee died before reaching the retirement age and that at such time the plan met the requirements of section 401(a). Since the payment to the designated beneficiary is receivable under a qualified pension plan, the provisions of section 2039(c) apply. However, if the payment is a lump sum distribution to which §20.2039-3 or §20.2039-4 applies, the payment is excludable from the decedent's gross estate only as provided in such section. It should be noted that for purposes of the exclusion under section 2039(c) it is immaterial whether or not the payment constitutes the proceeds of life insurance under the principles set forth in §20.2039-1(d).
Example (4). Pursuant to a profit-sharing plan, the employer made contributions to a trust which were allocated to the employee's individual account. Under the plan, the employee would, upon his retirement at age 60, be given the option to have the amount credited to his account (a) paid to him in a lump sum, (b) used to purchase a joint and survivor annuity for him and his designated beneficiary, or (c) left with the trustee under an arrangement whereby interest would be paid to him for his lifetime with the principal to be paid, at his death, to his designated beneficiary. The plan further provided that if the third method of settlement were selected, the employee would retain the right to have the principal paid to himself in a lump sum up to the time of his death. At the time of the employee's retirement, the profit-sharing plan met the requirements of section 401(a). Assume that the employee, upon reaching his retirement age, elected to have the amount credited to his account left with the trustee under the interest arrangement. Assume, further, that the employee did not exercise his right to have such amount paid to him before his death. Under such circumstances, the employee is considered as having constructively received the amount credited to his account upon his retirement. Thus, such amount is not considered as receivable by the designated beneficiary under the profit-sharing plan and the exclusion of section 2039(c) is not applicable.
Example (5). An employer purchased a retirement annuity contract for an employee which was to provide the employee, upon his retirement at age 60, with an annuity for life and which was to provide his wife, upon the employee's death after retirement, with a similar annuity for life. The employer, for its taxable year in which the annuity contract was purchased, was an organization referred to in section 170(b)(1)(ii), and was exempt from tax under section 501(a). The entire amount of the purchase price of the annuity contract was excluded from the employee's gross income under section 403(b). No part of the value of the survivor annuity payable after the employee's death is includible in the decedent's gross estate by reason of the provisions of section 2039(c).

(c) Amounts excludable from the gross estate. (1) The amount to be excluded from a decedent's gross estate under section 2039(c) is an amount which bears the same ratio to the value at the decedent's death of an annuity or other payment receivable by the beneficiary as the employer's contribution (or a contribution made on the employer's behalf) on the employee's account to the plan or towards the purchase of the annuity contract bears to the total contributions on the employee's account to the plan or towards the purchase of the annuity contract. In applying this ratio—

(i) Payments or contributions made by or on behalf of the employer towards the purchase of an annuity contract described in paragraph (b)(3) of this section are considered to include only such payments or contributions as are, or were, excludable from the employee's gross income under section 403(b).

(ii) In the case of a decedent dying before January 1, 1977, payments or contributions made under a plan described in paragraph (b) (1), (2) or (5) of this section on behalf of the decedent for a period for which the decedent was self-employed, within the meaning of section 401(c)(1), with respect to the plan are considered payments or contributions made by the decedent and not by the employer.

(iii) In the case of a decedent dying after December 31, 1976, however, payments or contributions made under a plan described in paragraph (b) (1), (2) or (5) of this section on behalf of the decedent for a period for which the decedent was self-employed, within the meaning of section 401(c)(1), with respect to the plan are considered payments or contributions made by the employer to the extent the payments or contributions are, or were, deductible under section 404 or 405(c). Contributions or payments attributable to that period which are not, or were not, so deductible are considered made by the decedent.

(iv) In the case of a plan described in paragraph (b) (1) or (2) of this section, a rollover contribution described in section 402(a)(5), 403(a)(4), 409(d)(3)(A)(ii) or 409(b)(3)(C) is considered an amount contributed by the employer.

(v) In the case of an annuity contract described in paragraph (b)(3) of this section, a rollover contribution described in section 403(b)(8) is considered an amount contributed by the employer.

(vi) In the case of a plan described in paragraph (b) (1), (2) or (5) of this section, an amount includable in the gross income of an employee under section 1379(b) (relating to shareholder-employee beneficiaries under certain qualified plans) is considered an amount paid or contributed by the decedent.

(vii) Amounts payable under paragraph (b)(4) of this section are attributable to payments or contributions made by the decedent only to the extent of amounts deposited by the decedent pursuant to section 1438 or 1452(d) of title 10 of the United States Code.

(viii) The value at the decedent's death of the annuity or other payment is determined under the rules of §§20.2031-1 and 20.2031-7 or, for certain prior periods, §20.2031-7A.

(2) In certain cases, the employer's contribution (or a contribution made on his behalf) to a plan on the employee's account and thus the total contributions to the plan on the employee's account cannot be readily ascertained. In order to apply the ratio stated in subparagraph (1) of this paragraph in such a case, the method outlined in the following two sentences must be used unless a more precise method is presented. In such a case, the total contributions to the plan on the employee's account is the value of any annuity or other payment payable to the decedent and his survivor computed as of the time the decedent's rights first mature (or as of the time the survivor's rights first mature if the decedent's rights never mature) and computed in accordance with the rules set forth in §§20.2031-1, 20.2031-7, 20.2031-8, and 20.2031-9. By subtracting from such value the amount of the employee's contribution to the plan, the amount of the employer's contribution to the plan on the employee's account may be obtained. The application of this paragraph may be illustrated by the following example.

Example. Pursuant to a pension plan, the employer and the employee contributed to a trust which was to provide the employee, upon his retirement at age 60, with an annuity for life, and which was to provide his wife, upon the employee's death after retirement, with a similar annuity for life. At the time of the employee's retirement, the pension trust formed part of a plan meeting the requirements of section 401(a). Assume the following: (i) That the employer's contributions to the fund were not credited to the accounts of individual employees; (ii) that the value of the employee's annuity and his wife's annuity, computed as of the time of the decedent's retirement, was $40,000; (iii) that the employee contributed $10,000 to the plan; and (iv) that the value at the decedent's death of the wife's annuity was $16,000. On the basis of these facts, the total contributions to the fund on the employee's account are presumed to be $40,000 and the employer's contribution to the plan on the employee's account is presumed to be $30,000 ($40,000 less $10,000). Since the wife's annuity was receivable under a qualified pension plan, that part of the value of such annuity which is attributable to the employer's contributions ($30,000÷$40,000×$16,000), or $12,000 is excludable from the decedent's gross estate by reason of the provisions of section 2039(c). Compare this result with the results reached in the examples set forth in paragraph (b) of this section in which all contributions to the plans were made by the employer.

(d) Exclusion of certain annuity interests created by community property laws. (1) In the case of an employee on whose behalf contributions or payments were made by his employer or former employer under an employees' trust forming part of a pension, stock bonus, or profit-sharing plan described in section 2039(c)(1), under an employee's retirement annuity contract described in section 2039(c)(2), or toward the purchase of an employee's retirement annuity contract described in section 2039(c)(3), which under section 2039(c) are not considered as contributed by the employee, if the spouse of such employee predeceases him, then, notwithstanding the provisions of section 2039 or of any other provision of law, there shall be excluded from the gross estate of such spouse the value of any interest of such spouse in such plan or trust or such contract, to the extent such interest—

(i) Is attributable to such contributions or payments, and

(ii) Arises solely by reason of such spouse's interest in community income under the community property laws of a State.

(2) Section 2039(d) and this paragraph do not provide any exclusion for such spouse's property interest in the plan, trust or contract to the extent it is attributable to the contributions of the employee spouse. Thus, the decedent's community property interest in the plan, trust, or contract which is attributable to contributions made by the employee spouse are includible in the decendent's gross estate. See paragraph (c) of this section.

(3) Section 2039(d) and this paragraph apply to the estate of a decedent who dies on or after October 27, 1972, and to the estate of a decedent who died before October 27, 1972, if the period for filing a claim for credit or refund of an overpayment of the estate tax ends on or after October 27, 1972. Interest will not be allowed or paid on any overpayment of tax resulting from the application of section 2039(d) and this paragraph for any period prior to April 26, 1973.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6526, 26 FR 416, Jan. 19, 1961; T.D. 7043, 35 FR 8480, June 2, 1970; T.D. 7416, 41 FR 14514, Apr. 6, 1976; T.D. 7428, 41 FR 34628, Aug. 16, 1976; T.D. 7562, 43 FR 38820, Aug. 31, 1978; T.D. 7761, 46 FR 7303, Jan. 23, 1981; T.D. 8540, 59 FR 30103, June 10, 1994]

§20.2039-3   Lump sum distributions under “qualified plans;” decedents dying after December 31, 1976, and before January 1, 1979.

(a) Limitation of section 2039(c) exclusion. This section applies in the case of a decedent dying after December 31, 1976, and before January 1, 1979. If a lump sum distribution is paid with respect to the decedent under a plan described in §20.2039-2(b) (1) or (2) (a “qualified plan”), no amount payable with respect to the decedent under the plan is excludable from the decedent's gross estate under §20.2039-2.

(b) “Lump sum distribution” defined. For purposes of this section the term “lump sum distribution” means a lump sum distribution defined in section 402(e)(4)(A) that satisfies the requirements of section 402(e)(4)(C), relating to the aggregation of certain trusts and plans. The distribution of an annuity contract is not a lump sum distribution for purposes of this section, and §20.2039-2 will apply with respect to the distribution of an annuity contract without regard to whether the contract is included in a distribution that is otherwise a lump sum distribution under this paragraph (b). A distribution is a lump sum distribution for purposes of this section without regard to the election described in section 402(e)(4)(B).

(c) Amounts payable as a lump sum distribution. If on the date the estate tax return is filed, an amount under a qualified plan is payable with respect to the decedent as a lump sum distribution (whether at the election of a beneficiary or otherwise), for purposes of this section the amount is deemed paid as a lump sum distribution no later than on such date. Accordingly, no portion of the amount payable under the plan is excludable from the value of the decedent's gross estate under §20.2039-2. If, however, the amount payable as a lump sum distribution is not, in fact, thereafter paid as a lump sum distribution, there shall be allowed a credit or refund of any tax paid which is attributable to treating such amount as a lump sum distribution under this paragraph. Any claim for credit or refund filed under this paragraph must be filed within the time prescribed by section 6511, and must provide satisfactory evidence that the amount originally payable as a lump sum distribution is no longer payable in such form.

(d) Filing date. For purposes of paragraph (c) of this section, “the date the estate tax return is filed” means the earlier of—

(1) The date the estate tax return is actually filed, or

(2) The date nine months after the decedent's death, plus any extension of time for filing the estate tax return granted under section 6081.

[T.D. 7761, 46 FR 7304, Jan. 23, 1981]

§20.2039-4   Lump sum distributions from “qualified plans;” decedents dying after December 31, 1978.

(a) Limitation on section 2039(c) exclusion. This section applies in the case of a decedent dying after December 31, 1978. If a lump sum distribution is paid or payable with respect to a decedent under a plan described in §20.2039-2(b) (1) or (2) (a “qualified plan”), no amount paid or payable with respect to the decedent under the plan is excludable from the decedent's gross estate under §20.2039-2, unless the recipient of the distribution makes the section 402(a)/403(a) taxation election described in paragraph (c) of this section. For purposes of this section, an amount is payable as a lump sum distribution under a plan if, as of the date the estate tax return is filed (as determined under §20.2039-3(d)), it is payable as a lump sum distribution at the election of the recipient or otherwise.

(b) “Lump sum distribution” defined; treatment of annuity contracts. For purposes of this section the term “lump sum distribution” means a lump sum distribution defined in section 402(e)(4)(A) that satisfies the requirements of section 402(e)(4)(C), relating to the aggregation of certain trusts and plans. A distribution is a lump sum distribution for purposes of this section without regard to the election described in section 402(e)(4)(B). The distribution of an annuity contract is not a lump sum distribution for purposes of this section, and the limitation described in this section does not apply to an annuity contract distributed under a plan. Accordingly, if the amount payable with respect to a decedent under a plan is paid to a recipient partly by the distribution of an annuity contract, and partly by the distribution of an amount that is a lump sum distribution within the meaning of this paragraph (b), §20.2039-2 shall apply with respect to the annuity contract without regard to whether the recipient makes the section 402(a)/403(a) taxation election with respect to the remainder of the distribution.

(c) Recipient's section 402(a)/403(a) taxation election. The section 402(a)/403(a) taxation election is the election by the recipient of a lump sum distribution to treat the distribution as—

(1) Taxable under section 402(a), without regard to section 402(a)(2), to the extent includable in gross income (in the case of a distribution under a qualified plan described in §20.2039-2(b)(1)),

(2) Taxable under section 403(a), without regard to section 403(a)(2), to the extent includable in gross income (in the case of a distribution under a qualified annuity contract described in §20.2039-2(b)(2)), or

(3) A rollover contribution, in whole or in part, under section 402(a)(7) (relating to rollovers by a decedent's surviving spouse).

Accordingly, if a recipient makes the election, no portion of the distribution is taxable to the recipient under the 10-year averaging provisions of section 402(e) or as long-term capital gain under section 402(a)(2). However, a recipient's election under this paragraph (c) does not preclude the application of section 402(e)(4)(J) to any securities of the employer corporation included in the distribution.

(d) Method of election—(1) General rule. The recipient of a lump sum distribution shall make the section 402(a)/403(a) taxation election by:

(i) Determining the income tax liability on the income tax return (or amended return) for the taxable year of the distribution in a manner consistent with paragraph (c) (1) or (2) of this section,

(ii) Rolling over all or any part of the distribution under section 402(a)(7), or

(iii) Filing a section 2039(f)(2) election statement described in paragraph (d)(2) of this section.

(2) Election statement. A recipient may file a section 2039(f)(2) election statement indicating that the recipient elects to treat a lump sum distribution in the manner described in paragraph (c) of this section. The statement must be filed where the recipient would file the income tax return for the taxable year of the distribution. The statement must be signed by the recipient and include the individual's name, address, social security number, the name of the decedent, and a statement indicating the election is being made. A section 2039(f)(2) election statement may be filed at any time prior to making the election under paragraph (d)(1) (i) or (ii) of this section.

(3) Effect on estate tax return. If the date the estate tax return is filed precedes the date on which the recipient makes the section 402(a)/403(a) taxation election with respect to a lump sum distribution, the estate tax return may not reflect the election. However, if after the estate tax return is filed, the recipient makes the section 402(a)/403(a) taxation election, the executor of the estate may file a claim for refund or credit of an overpayment of the Federal estate tax within the time prescribed in section 6511. See also, §20.6081-1 for rules relating to obtaining an extension of time for filing the estate tax return.

(e) Election irrevocable. If a recipient of a lump sum distribution files a section 2039(f)(2) election statement, an income tax return (or amended return) or makes a rollover contribution that constitutes the section 402(a)/403(a) taxation election described in paragraphs (c) and (d), the election may not be revoked. Accordingly, a subsequent and amended income tax return filed by the recipient that is inconsistent with the prior election will not be given effect for purposes of section 2039 and section 402 or 403.

(f) Lump sum distribution to multiple recipients. In the case of a lump sum distribution paid or payable under a qualified plan with respect to the decedent to more than one recipient, the exclusion under §20.2039-2 applies to so much of the distribution as is paid or payable to a recipient who makes the section 402(a)/403(a) taxation election.

(g) Distributions of annuity contracts included in multiple distributions. Notwithstanding that a recipient makes the section 402(a)/403(a) taxation election with respect to a lump sum distribution that includes the distribution of an annuity contract, the distribution of the annuity contract is to be taken into account by the recipient for purposes of the multiple distribution rules under section 402(e).

[T.D. 7761, 46 FR 7304, Jan. 23, 1981, as amended by T.D. 7956, 49 FR 20284, May 14, 1984]

§20.2039-5   Annuities under individual retirement plans.

(a) Section 2039(e) exclusion—(1) In general. In the case of a decedent dying after December 31, 1976, section 2039 (e) excludes from the decedent's gross estate, to the extent provided in paragraph (c) of this section, the value of a “qualifying annuity” receivable by a beneficiary under an individual retirement plan. The term “individual retirement plan” means—

(i) An individual retirement account described in section 408(a).

(ii) An individual retirement annuity described in section 408(b), or

(iii) A retirement bond described in section 409(a).

(2) Limitations. (i) Section 2039(e) applies only with respect to the gross estate of a decedent on whose behalf the individual retirement plan was established. Accordingly, section 2039(e) does not apply with respect to the estate of a decedent who was only a beneficiary under the plan.

(ii) Section 2039(e) does not apply to an annuity receivable by or for the benefit of the decedent's estate. For the meaning of the term “receivable by or for the benefit of the decedent's estate,” see §20.2042-1(b).

(b) Qualifying annuity. For purposes of this section, the term “qualifying annuity” means an annuity contract or other arrangement providing for a series of substantially equal periodic payments to be made to a beneficiary for the beneficiary's life or over a period ending at least 36 months after the decedent's death. The term “annuity contract” includes an annuity purchased for a beneficiary and distributed to the beneficiary, if under section 408 the contract is not included in the gross income of the beneficiary upon distribution. The term “other arrangement” includes any arrangement arising by reason of the decedent's participation in the program providing the individual retirement plan. Payments shall be considered “periodic” if under the arrangement or contract (including a distributed contract) payments are to be made to the beneficiary at regular intervals. If the contract or arrangement provides optional payment provisions, not all of which provide for periodic payments, payments shall be considered periodic only if an option providing periodic payments is elected not later than the date the estate tax return is filed (as determined under §20.2039-3(d)). For this purpose, the right to surrender a contract (including a distributed contract) for a cash surrender value will not be considered an optional payment provision. Payments shall be considered “substantially equal” even though the amounts receivable by the beneficiary may vary. Payments shall not be considered substantially equal, however, if more than 40% of the total amount payable to the beneficiary under the individual retirement plan, determined as of the date of the decedent's death and excluding any postmortem increase, is payable to the beneficary in any 12-month period.

(c) Amount excludible from gross estate—(1) In general. Except as otherwise described in this paragraph (c), the amount excluded from the decedent's gross estate under section 2039 (e) is the entire value of the qualifying annuity (as determined under §§20.2031-1 and 20.2031-7 or, for certain prior periods, §20.2031-7A) payable under the individual retirement plan.

(2) Excess contribution. In any case in which there exists, on the date of the decedent's death, an excess contribution (as defined in section 4973(b)) with respect to the individual retirement plan, the amount excluded from the value of the decedent's gross estate is determined under the following formula:

E=A−A(X÷C−R)

Where:

E=The amount excluded from the decedent's gross estate under section 2039(e),

A=The value of the qualifying annuity at the decedent's death (as determined under §§20.2031-1 and 20.2031-7 or, for certain prior periods, §20.2031-7A),

X=The amount which is an excess contribution at the decedent's death (as determined under section 4973(b)),

C=The total amount contributed by or on behalf of the decedent to the individual retirement plan, and

R=The total of amounts paid or distributed from the individual retirement plan before the death of the decedent which were either includable in the gross income of the recipient under section 408(d)(1) and represented the payment or distribution of an excess contribution, or were payments or distributions described in section 408(d)(4) or (5) (relating to returned excess contributions).

(3) Certain section 403(b)(8) rollover contributions. This subparagraph (3) applies if the decedent made a rollover contribution to the individual retirement plan under section 403(b)(8), and the contribution was attributable to a distribution under an annuity contract other than an annuity contract described in §20.2039-2(b)(3). If such a rollover contribution was the only contribution made to the plan, no part of the value of the qualifying annuity payable under the plan is excluded from the decedent's gross estate under section 2039(e). If a contribution other than such a rollover contribution was made to the plan, the amount excluded from the decedent's gross estate is determined under the formula described in subparagraph (2) of this paragraph, except that for purposes of that formula, X includes the amount that was a rollover contribution under section 403(b)(8) attributable to a distribution under an annuity contract not described in §20.2039-2(b)(3).

(4) Surviving spouse's rollover contribution. This subparagraph (4) applies if the decedent made a rollover contribution to the individual retirement plan under section 402(a)(7), relating to rollovers by a surviving spouse. If the rollover contribution under section 402(a)(7) was the only contribution made by the decedent to the plan, no part of the value of the qualifying annuity payable under the plan is excluded from the decedent's gross estate under section 2039(e). If a contribution other than a rollover contribution under section 402(a)(7) was made by the decedent to the plan, the amount excluded from the decedent's gross estate is determined under the formula described in subparagraph (2) of this paragraph, except that for purposes of that formula, X includes the amount that was a rollover contribution under section 402(a)(7).

(5) Election under §1.408-2(b)(7)(ii). This subparagraph (5) applies if the decedent at any time made the election described in §1.408-2(b)(7)(ii) with respect to an amount in the individual retirement plan. If this subparagraph (5) applies, the amount excluded from the decedent's gross estate is determined under the formula described in subparagraph (2), except that for purposes of that formula, X and C include the amount with respect to which the election was made.

(6) Plan-to-plan rollovers. (i) This subparagraph (6) applies if the individual retirement plan is a transferee plan. A “transferee plan” is a plan that was the recipient of a contribution described in section 408(d)(3)(A)(i) or 409(b)(3)(C) (relating to rollovers from one individual retirement plan to another) made by the decedent. The amount of the contribution described in section 408(d)(3)(A)(i) or 409(b)(3)(C) is the “rollover amount.” The plan from which the rollover amount was paid or distributed to the decedent is the “transferor plan.”

(ii) If the decedent made a contribution described in subparagraph (3) or (4) to the transferor plan, the amount excluded from the decedent's gross estate with respect to the transferee plan is determined under the formula described in subparagraph (2), except that for purposes of that formula, X includes so much of the rollover amount as was attributable to the contribution to the transferor plan that was described in subparagraph (3) or (4). The extent to which a rollover amount is attributable to a contribution described in subparagraph (3) or (4) that was made to the transferor plan is determined by multiplying the rollover amount by a fraction, the numerator of which is the amount of such contribution, and the denominator of which is the sum of all amounts contributed by the decedent to the transferor plan (if not returned as described under R in subparagraph (2)), and any amount in the transferor plan to which the election described in subparagraph (5) applied.

(iii) If the decedent made the election described in subparagraph (5) with respect to an amount in the transferor plan, the amount excluded from the decedent's gross estate with respect to the transferee plan is determined under the formula described in subparagraph (2), except that for purposes of that formula, X includes so much of the rollover amount as was attributable to the amount in the transferor plan to which the election applied. The extent to which a rollover amount is attributable to an amount in the transferor plan to which the election applied is determined by multiplying the rollover amount by a fraction, the numerator of which is the amount to which the election applied, and the denominator of which is the sum of all amounts contributed by the decedent to the transferor plan (if not returned as described under R in subparagraph (2)), and the amount in the transferor plan to which the election applied.

(iv) If a transferor plan described in this subparagraph (6) was also a transferee plan, then the rules described in this subparagraph (6) are to be applied with respect to both the rollover amount paid to the plan and the rollover amount thereafter paid from the plan.

(d) Examples. The provisions of this section are illustrated by the following examples:

Example (1). (1) A establishes an individual retirement account described in section 408 (a) on January 1, 1976, when A is age 65. A's only contribution to the account is a rollover contribution described in section 402(a)(5). The trust agreement provides that A may at any time elect to have the balance in the account distributed in one of the following methods:

(i) A single sum payment of the account,

(ii) Equal or substantially equal semiannual payments over a period equal to A's life expectancy, or

(iii) Equal or substantially equal semiannual payments over a period equal to the life expectancy of A and A's spouse.

(2) The trust agreement further provides that although semiannual payments have commenced under option (ii) or (iii), A (or A's surviving spouse) may, by written notice to the trustee, receive all or a part of the balance remaining in the account. In addition, under option (ii), any balance remaining in the account at A's death is payable in a single sum to A's designated beneficiary. Under option (iii), any balance remaining in the account at the death of the survivor of A or A's spouse is payable in a single sum to a beneficiary designated by A or A's surviving spouse.

(3) A elects option (iii), and the first semiannual payment is made to A on July 1, 1976. On that date, A's life expectancy is 15 years, and that of A's spouse is 22 years. Under option (iii), the semiannual payments to A or A's surviving spouse will continue until July 1, 1998.

(4) A dies on November 20, 1978. On December 15, 1978, the trust agreement is modified so that A's surviving spouse no longer may elect to receive all or part of the balance remaining in the account. The value of the semiannual payments payable to A's spouse is excluded from A's gross estate under section 2039(e).

(5) A's spouse dies July 12, 1981, and the single sum payment payable on account of the death of A's spouse is paid to the designated beneficiary on August 1, 1981. Notwithstanding that the balance in the account was paid to the designated beneficiary within 36 months after A's death, the value of the semiannual payments payable to A's spouse are excluded from A's gross estate, since at A's death those semiannual payments were to be paid over a period extending beyond 36 months. Section 2039(e) does not apply to exclude any amount from the estate of A's spouse, because A's spouse was only a beneficiary and not the individual on whose behalf the account was established.

Example (2). Assume the same facts as in example (1), except that the trust agreement is not modified so that A's surviving spouse no longer may elect to receive all or part of the balance remaining in the account (see (2) and (4) in example (1)). Instead, the balance of the account is applied toward the purchase of a contract providing an immediate annuity, the contract is distributed to A's surviving spouse on December 15, 1978, and under section 408 the contract is not included in the gross income of the spouse upon its distribution. The value of the annuity contract is excluded from A's gross estate, if the contract provides for a series of substantially equal periodic payments (within the meaning of paragraph (b) of this section) to be made over the life of A's surviving spouse or over a period not ending before the date 36 months after A's death.
Example (3). (1) B establishes an individual retirement plan described in section 408(a) (“IRA B”) on February 6, 1981, in order to receive a $220,000 rollover contribution from a qualified plan, as described in section 402(a)(5). B dies August 14, 1981. C, an individual, is the sole beneficiary under IRA B. The amount in IRA B ($238,000) is payable to C in whole or part as C may elect. Because the amount in IRA B is payable to C as other than a qualifying annuity, within the meaning of paragraph (b) of this section, no amount is excluded from B's gross estate under section 2039(e).

(2) On October 17, 1981, C contributes $1,500 on C's own behalf to IRA B. Under §1.408-2(b)(7)(ii), C's contribution will cause IRA B to be treated as being maintained by and on behalf of C (“IRA C”) and C's making the contribution constitutes an election to which paragraph (c)(5) of this section applies. The balance in IRA C immediately before C's contribution is $240,000. Accordingly, the amount with respect to which C made the election is $240,000.

(3) C dies January 19, 1982. E, an individual, is the sole beneficiary under the plan, and the amounts payable to E ($242,000) are payable as a qualifying annuity, within the meaning of paragraph (b) of this section.

(4) The rules described in section 2039(e) and this section are applied with respect to the gross estate of C without regard to whether amounts now payable under IRA C were or were not excluded from B's gross estate. Under paragraph (c) of this section, the amount not excluded from C's gross estate is the value of the qualifying annuity payable to E ($242,000), multiplied by the fraction $240,000/($240,000+$1,500). Thus, the amount not excluded from C's gross estate is $240,497. [($242,000) ($240,000 ($240,000+$1,500))=$240,497.] The amount excluded is therefore $1,503 ($242,000−$240,497).

Example (4). (1) F, an individual, establishes an individual retirement plan (“IRA F1”) in 1977 and makes $1,250 annual contributions for 1977, 1978, 1979 and 1980 (4×$1,250=$5,000), each of which is deducted by F under section 219. In February 1980, F receives an $85,000 distribution on account of the death of G, F's spouse, from the qualified plan of G's former employer, and rolls it over into IRA F1, under section 402(a)(7). Because IRA F1 includes a rollover contribution under section 402(a)(7), paragraph (c)(4) of this section applies. In 1981, F's entire interest in IRA F1, $100,000, is paid to F and contributed to another individual retirement plan (“IRA F2”) under section 408(d)(3)(A)(i). IRA F2 is a transferee plan to which paragraph (c)(6) of this section applies because of the rollover. F makes a $1,500 deductible contribution to IRA F2 for 1981.

(2) F dies in 1984. The balance in IRA F2 ($146,000) is payable to G, an individual, as a qualifying annuity, within the meaning of paragraph (b) of this section.

(3) Under paragraph (c) of this section, the amount not excluded from F's gross estate is the value of the qualifying annuity payable under IRA F2 multiplied by the fraction $96,700/$101,500. Accordingly, the amount not excluded is $139,096. [($146,000) ($96,700/$101,500)=$139,096.] The amount excluded is $6,904 ($146,000−$139,096).

(4) The numerator of the fraction ($96,700) is determined by multiplying the amount rolled over from IRA F1 to IRA F2 ($100,000) by a fraction, the numerator of which is the amount of the rollover contribution to IRA F1 ($85,000), and the denominator of which is the total contributions to IRA F1 ($85,000+$5,000=$90,000). [($100,000) ($85,000/$90,000)=$96,700.]

(5) The denominator of the fraction ($101,500) is the sum of the contributions to IRA F2 (the $100,000 rollover contribution from IRA F1, and the $1,500 annual contribution to IRA F2).

[T.D. 7761, 46 FR 7305, Jan. 23, 1981; 46 FR 17191, Mar. 18, 1981, as amended by T.D. 8540, 59 FR 30103, June 10, 1994]

§20.2040-1   Joint interests.

(a) In general. A decedent's gross estate includes under section 2040 the value of property held jointly at the time of the decedent's death by the decedent and another person or persons with right of survivorship, as follows:

(1) To the extent that the property was acquired by the decedent and the other joint owner or owners by gift, devise, bequest, or inheritance, the decedent's fractional share of the property is included.

(2) In all other cases, the entire value of the property is included except such part of the entire value as is attributable to the amount of the consideration in money or money's worth furnished by the other joint owner or owners. See §20.2043-1 with respect to adequacy of consideration. Such part of the entire value is that portion of the entire value of the property at the decedent's death (or at the alternate valuation date described in section 2032 which the consideration in money or money's worth furnished by the other joint owner or owners bears to the total cost of acquisition and capital additions. In determining the consideration furnished by the other joint owner or owners, there is taken into account only that portion of such consideration which is shown not to be attributable to money or other property acquired by the other joint owner or owners from the decedent for less than a full and adequate consideration in money or money's worth.

The entire value of jointly held property is included in a decedent's gross estate unless the executor submits facts sufficient to show that property was not acquired entirely with consideration furnished by the decedent, or was acquired by the decedent and the other joint owner or owners by gift, bequest, devise, or inheritance.

(b) Meaning of “property held jointly”. Section 2040 specifically covers property held jointly by the decedent and any other person (or persons), property held by the decedent and spouse as tenants by the entirety, and a deposit of money, or a bond or other instrument, in the name of the decedent and any other person and payable to either or the survivor. The section applies to all classes of property, whether real or personal, and regardless of when the joint interests were created. Furthermore, it makes no difference that the survivor takes the entire interest in the property by right of survivorship and that no interest therein forms a part of the decedent's estate for purposes of administration. The section has no application to property held by the decedent and any other person (or persons) as tenants in common.

(c) Examples. The application of this section may be explained in the following examples in each of which it is assumed that the other joint owner or owners survived the decedent:

(1) If the decedent furnished the entire purchase price of the jointly held property, the value of the entire property is included in his gross estate;

(2) If the decedent furnished a part only of the purchase price, only a corresponding portion of the value of the property is so included;

(3) If the decedent furnished no part of the purchase price, no part of the value of the property is so included;

(4) If the decedent, before the acquisition of the property by himself and the other joint owner, gave the latter a sum of money or other property which thereafter became the other joint owner's entire contribution to the purchase price, then the value of the entire property is so included, notwithstanding the fact that the other property may have appreciated in value due to market conditions between the time of the gift and the time of the acquisition of the jointly held property;

(5) If the decedent, before the acquisition of the property by himself and the other joint owner, transferred to the latter for less than an adequate and full consideration in money or money's worth other income-producing property, the income from which belonged to and became the other joint owner's entire contribution to the purchase price, then the value of the jointly held property less that portion attributable to the income which the other joint owner did furnish is included in the decedent's gross estate;

(6) If the property originally belonged to the other joint owner and the decedent purchased his interest from the other joint owner, only that portion of the value of the property attributable to the consideration paid by the decedent is included;

(7) If the decedent and his spouse acquired the property by will or gift as tenants by the entirety, one-half of the value of the property is included in the decedent's gross estate; and

(8) If the decedent and his two brothers acquired the property by will or gift as joint tenants, one-third of the value of the property is so included.

§20.2041-1   Powers of appointment; in general.

(a) Introduction. A decedent's gross estate includes under section 2041 the value of property in respect of which the decedent possessed, exercised, or released certain powers of appointment. This section contains rules of general application; §20.2041-2 contains rules specifically applicable to general powers of appointment created on or before October 21, 1942; and §20.2041-3 sets forth specific rules applicable to powers of appointment created after October 21, 1942.

(b) Definition of “power of appointment”—(1) In general. The term “power of appointment” includes all powers which are in substance and effect powers of appointment regardless of the nomenclature used in creating the power and regardless of local property law connotations. For example, if a trust instrument provides that the beneficiary may appropriate or consume the principal of the trust, the power to consume or appropriate is a power of appointment. Similarly, a power given to a decedent to affect the beneficial enjoyment of trust property or its income by altering, amending, or revoking the trust instrument or terminating the trust is a power of appointment. If the community property laws of a State confer upon the wife a power of testamentary disposition over property in which she does not have a vested interest she is considered as having a power of appointment. A power in a donee to remove or discharge a trustee and appoint himself may be a power of appointment. For example, if under the terms of a trust instrument, the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself, and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself, the decedent is considered as having a power of appointment. However, the decedent is not considered to have a power of appointment if he only had the power to appoint a successor, including himself, under limited conditions which did not exist at the time of his death, without an accompanying unrestricted power of removal. Similarly, a power to amend only the administrative provisions of a trust instrument, which cannot substantially affect the beneficial enjoyment of the trust property or income, is not a power of appointment. The mere power of management, investment, custody of assets, or the power to allocate receipts and disbursements as between income and principal, exercisable in a fiduciary capacity, whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of such fiduciary duties is not a power of appointment. Further, the right in a beneficiary of a trust to assent to a periodic accounting, thereby relieving the trustee from further accountability, is not a power of appointment if the right of assent does not consist of any power or right to enlarge or shift the beneficial interest of any beneficiary therein.

(2) Relation to other sections. For purposes of §§20.2041-1 to 20.2041-3, the term “power of appointment” does not include powers reserved by the decedent to himself within the concept of sections 2036 through 2038. (See §§20.2036-1 to 20.2038-1.) No provision of section 2041 or of §§20.2041-1 to 20.2041-3 is to be construed as in any way limiting the application of any other section of the Internal Revenue Code or of these regulations. The power of the owner of a property interest already possessed by him to dispose of his interest, and nothing more, is not a power of appointment, and the interest is includable in his gross estate to the extent it would be includable under section 2033 or some other provision of Part III of Subchapter A of Chapter 11. For example, if a trust created by S provides for payment of the income to A for life with power in A to appoint the remainder by will and, in default of such appointment for payment of the income to A's widow, W, for her life and for payment of the remainder to A's estate, the value of A's interest in the remainder is includable in his gross estate under section 2033 regardless of its includability under section 2041.

(3) Powers over a portion of property. If a power of appointment exists as to part of an entire group of assets or only over a limited interest in property, section 2041 applies only to such part or interest. For example, if a trust created by S provides for the payment of income to A for life, then to W for life, with power in A to appoint the remainder by will and in default of appointment for payment of the remainder to B or his estate, and if A dies before W, section 2041 applies only to the value of the remainder interest excluding W's life estate. If A dies after W, section 2041 would apply to the value of the entire property. If the power were only over one-half the remainder interest, section 2041 would apply only to one-half the value of the amounts described above.

(c) Definition of “general power of appointment”—(1) In general. The term “general power of appointment” as defined in section 2041(b)(1) means any power of appointment exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate, except (i) joint powers, to the extent provided in §§20.2041-2 and 20.2041-3, and (ii) certain powers limited by an ascertainable standard, to the extent provided in subparagraph (2) of this paragraph. A power of appointment exercisable to meet the estate tax, or any other taxes, debts, or charges which are enforceable against the estate, is included within the meaning of a power of appointment exercisable in favor of the decedent's estate, his creditors, or the creditors of his estate. A power of appointment exercisable for the purpose of discharging a legal obligation of the decedent or for his pecuniary benefit is considered a power of appointment exercisable in favor of the decedent or his creditors. However, for purposes of §§20.2041-1 to 20.2041-3, a power of appointment not otherwise considered to be a general power of appointment is not treated as a general power of appointment merely by reason of the fact that an appointee may, in fact, be a creditor of the decedent or his estate. A power of appointment is not a general power if by its terms it is either—

(a) Exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors, or the decedent's estate or the creditors of his estate, or

(b) Expressly not exercisable in favor of the decedent or his creditors, or the decedent's estate or the creditors of his estate.

A decedent may have two powers under the same instrument, one of which is a general power of appointment and the other of which is not. For example, a beneficiary may have a power to withdraw trust corpus during his life, and a testamentary power to appoint the corpus among his descendants. The testamentary power is not a general power of appointment.

(2) Powers limited by an ascertainable standard. A power to consume, invade, or appropriate income or corpus, or both, for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent is, by reason of section 2041(b)(1)(A), not a general power of appointment. A power is limited by such a standard if the extent of the holder's duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education, or support (or any combination of them). As used in this subparagraph, the words “support” and “maintenance” are synonymous and their meaning is not limited to the bare necessities of life. A power to use property for the comfort, welfare, or happiness of the holder of the power is not limited by the requisite standard. Examples of powers which are limited by the requisite standard are powers exercisable for the holder's “support,” “support in reasonable comfort,” “maintenance in health and reasonable comfort,” “support in his accustomed manner of living,” “education, including college and professional education,” “health,” and “medical, dental, hospital and nursing expenses and expenses of invalidism.” In determining whether a power is limited by an ascertainable standard, it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised.

(3) Certain powers under wills of decedents dying between January 1 and April 2, 1948. Section 210 of the Technical Changes Act of 1953 provides that if a decedent died after December 31, 1947, but before April 3, 1948, certain property interests described therein may, if the decedent's surviving spouse so elects, be accorded special treatment in the determination of the marital deduction to be allowed the decedent's estate under the provisions of section 812(e) of the Internal Revenue Code of 1939. See §81.47a (h) of Regulations 105 (26 CFR (1939) 81.47a(h)). The section further provides that property affected by the election shall, for the purpose of inclusion in the surviving spouse's gross estate, be considered property with respect to which she has a general power of appointment. Therefore, notwithstanding any other provision of law or of §§20.2041-1 to 20.2041-3, if the present decedent (in her capacity as surviving spouse of a prior decedent) has made an election under section 210 of the Technical Changes Act of 1953, the property which was the subject of the election shall be considered as property with respect to which the present decedent has a general power of appointment created after October 21, 1942, exercisable by deed or will, to the extent it was treated as an interest passing to the surviving spouse and not passing to any other person for the purpose of the marital deduction in the prior decedent's estate.

(d) Definition of “exercise”. Whether a power of appointment is in fact exercised may depend upon local law. For example, the residuary clause of a will may be considered under local law as an exercise of a testamentary power of appointment in the absence of evidence of a contrary intention drawn from the whole of the testator's will. However, regardless of local law, a power of appointment is considered as exercised for purposes of section 2041 even though the exercise is in favor of the taker in default of appointment, and irrespective of whether the appointed interest and the interest in default of appointment are identical or whether the appointee renounces any right to take under the appointment. A power of appointment is also considered as exercised even though the disposition cannot take effect until the occurrence of an event after the exercise takes place, if the exercise is irrevocable and, as of the time of the exercise, the condition was not impossible of occurrence. For example, if property is left in trust to A for life, with a power in B to appoint the remainder by will, and B dies before A, exercising his power by appointing the remainder to C if C survives A, B is considered to have exercised his power if C is living at B's death. On the other hand, a testamentary power of appointment is not considered as exercised if it is exercised subject to the occurrence during the decedent's life of an express or implied condition which did not in fact occur. Thus, if in the preceding example, C dies before B, B's power of appointment would not be considered to have been exercised. Similarly, if a trust provides for income to A for life, remainder as A appoints by will, and A appoints a life estate in the property to B and does not otherwise exercise his power, but B dies before A, A's power is not considered to have been exercised.

(e) Time of creation of power. A power of appointment created by will is, in general, considered as created on the date of the testator's death. However, section 2041(b)(3) provides that a power of appointment created by a will executed on or before October 21, 1942, is considered a power created on or before that date if the testator dies before July 1, 1949, without having republished the will, by codicil or otherwise, after October 21, 1942. A power of appointment created by an inter vivos instrument is considered as created on the date the instrument takes effect. Such a power is not considered as created at some future date merely because it is not exercisable on the date the instrument takes effect, or because it is revocable, or because the identity of its holders is not ascertainable until after the date the instrument takes effect. However, if the holder of a power exercises it by creating a second power, the second power is considered as created at the time of the exercise of the first. The application of this paragraph may be illustrated by the following examples:

Example (1). A created a revocable trust before October 22, 1942, providing for payment of income to B for life with remainder as B shall appoint by will. Even though A dies after October 21, 1942, without having exercised his power of revocation, B's power of appointment is considered a power created before October 22, 1942.
Example (2). C created an irrevocable inter vivos trust before October 22, 1942, naming T as trustee and providing for payment of income to D for life with remainder to E. T was given the power to pay corpus to D and the power to appoint a successor trustee. If T resigns after October 21, 1942, and appoints D as successor trustee, D is considered to have a power of appointment created before October 22, 1942.
Example (3). F created an irrevocable inter vivos trust before October 22, 1942, providing for payment of income to G for life with remainder as G shall appoint by will, but in default of appointment income to H for life with remainder as H shall appoint by will. If G died after October 21, 1942, without having exercised his power of appointment, H's power of appointment is considered a power created before October 22, 1942, even though it was only a contingent interest until G's death.
Example (4). If in example (3) above G had exercised his power of appointment by creating a similar power in J, J's power of appointment would be considered a power created after October 21, 1942.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6582, 26 FR 11861, Dec. 12, 1961]

§20.2041-2   Powers of appointment created on or before October 21, 1942.

(a) In general. Property subject to a general power of appointment created on or before October 21, 1942, is includable in the gross estate of the holder of the power under section 2041 only if he exercised the power under specified circumstances. Section 2041(a)(1) requires that there be included in the gross estate of a decedent the value of property subject to such a power only if the power is exercised by the decedent either (1) by will, or (2) by a disposition which is of such nature that if it were a transfer of property owned by the decedent, the property would be includable in the decedent's gross estate under section 2035 (relating to transfers in contemplation of death), 2036 (relating to transfers with retained life estate), 2037 (relating to transfers taking effect at death), or 2038 (relating to revocable transfers). See paragraphs (b), (c), and (d) of §20.2041-1 for the definition of various terms used in this section.

(b) Joint powers created on or before October 21, 1942. Section 2041(b)(1)(B) provides that a power created on or before October 21, 1942, which at the time of the exercise is not exercisable by the decedent except in conjunction with another person, is not deemed a general power of appointment.

(c) Exercise during life. The circumstances under which section 2041 applies to the exercise other than by will of a general power of appointment created on or before October 21, 1942, are set forth in paragraph (a) of this section. In this connection, the rules of sections 2035 through 2038 which are to be applied are those in effect on the date of the decedent's death which are applicable to transfers made on the date when the exercised of the power occurred. Those rules are to be applied in determining the extent to which and the conditions under which a disposition is considered a transfer of property. The application of this paragraph may be illustrated by the following examples:

Example (1). A decedent in 1951 exercised a general power of appointment created in 1940, reserving no interest in or power over the property subject to the general power. The decedent died in 1956. Since the exercise was not made within three years before the decedent's death, no part of the property is includable in his gross estate. See section 2035(b), relating to transfers in contemplation of death.
Example (2). S created a trust in 1930 to pay the income to A for life, remainder as B appoints by an instrument filed with the trustee during B's lifetime, and in default of appointment remainder to C. B exercised the power in 1955 by directing that after A's death the income be paid to himself for life with remainder to C. If B dies after A, the entire value of the trust property would be included in B's gross estate, since such a disposition if it were a transfer of property owned by B would cause the property to be included in his gross estate under section 2036(a)(1). If B dies before A, the value of the trust property less the value of A's life estate would be included in B's gross estate for the same reason.
Example (3). S created a trust in 1940 to pay the income to A for life, remainder as A appoints by an instrument filed with the trustee during A's lifetime. A exercised the trustee during A's lifetime. A exercised the power in 1955, five years before his death, reserving the right of revocation. The exercise, if not revoked before death, will cause the property subject to the power to be included in A's gross estate under section 2041(a)(1), since such a disposition if it were a transfer of property owned by A would cause the property to be included in his gross estate under section 2038. However, if the exercise were completely revoked, so that A died still possessed of the power, the property would not be included in A's gross estate for the reason that the power will not be treated as having been exercised.
Example (4). A decedent exercised a general power of appointment created in 1940 by making a disposition in trust under which possession or enjoyment of the property subject to the exercise could be obtained only by surviving the decedent and under which the decedent retained a reversionary interest in the property of a value of more than five percent. The exercise will cause the property subject to the power to be included in the decedent's gross estate, since such a disposition if it were a transfer of property owned by the decedent would cause the property to be included in his gross estate under section 2037.

(d) Release or lapse. A failure to exercise a general power of appointment created on or before October 21, 1942, or a complete release of such a power is not considered to be an exercise of a general power of appointment. The phrase “a complete release” means a release of all powers over all or a portion of the property subject to a power of appointment, as distinguished from the reduction of a power of appointment to a lesser power. Thus, if the decedent completely relinquished all powers over one-half of the property subject to a power of appointment, the power is completely released as to that one-half. If at or before the time a power of appointment is relinquished, the holder of the power exercises the power in such a manner or to such an extent that the relinquishment results in the reduction, enlargement, or shift in a beneficial interest in property, the relinquishment will be considered to be an exercise and not a release of the power. For example, assume that A created a trust in 1940 providing for payment on the income to B for life and, upon B's death, remainder to C. Assume further that B was given the unlimited power to amend the trust instrument during his lifetime. If B amended the trust in 1948 by providing that upon his death the remainder was to be paid to D, and if he further amended the trust in 1950 by deleting his power to amend the trust, such relinquishment will be considered an exercise and not a release of a general power of appointment. On the other hand, if the 1948 amendment became ineffective before or at the time of the 1950 amendment, or if B in 1948 merely amended the trust by changing the purely ministerial powers of the trustee, his relinquishment of the power in 1950 will be considered as a release of a power of appointment.

(e) Partial release. If a general power of appointment created on or before October 21, 1942, is partially released so that it is not thereafter a general power of appointment, a subsequent exercise of the partially released power is not an exercise of a general power of appointment if the partial release occurs before whichever is the later of the following dates:

(1) November 1, 1951, or

(2) If the decedent was under a legal disability to release the power on October 21, 1942, the day after the expiration of 6 months following the termination of such legal disability.

However, if a general power created on or before October 21, 1942, is partially released on or after the later of these dates, a subsequent exercise of the power will cause the property subject to the power to be included in the holder's gross estate, if the exercise is such that if it were a disposition of property owned by the decedent it would cause the property to be included in his gross estate. The legal disability referred to in this paragraph is determined under local law and may include the disability of an insane person, a minor, or an unborn child. The fact that the type of general power of appointment possessed by the decedent actually was not generally releasable under the local law does not place the decedent under a legal disability within the meaning of this paragraph. In general, however, it is assumed that all general powers of appointment are releasable, unless the local law on the subject is to the contrary, and it is presumed that the method employed to release the power is effective, unless it is not in accordance with the local law relating specifically to releases or, in the absence of such local law, is not in accordance with the local law relating to similar transactions.

(f) Partial exercise. If a general power of appointment created on or before October 21, 1942, is exercised only as to a portion of the property subject to the power, section 2041 is applicable only to the value of that portion. For example, if a decedent had a general power of appointment exercisable by will created on or before October 21, 1942, over a trust fund valued at $200,000 at the date of his death, and if the decedent exercised his power either to the extent of directing the distribution of one-half of the trust property to B or of directing the payment of $100,000 to B, the trust property would be includable in the decedent's gross estate only to the extent of $100,000.

§20.2041-3   Powers of appointment created after October 21, 1942.

(a) In general. (1) Property subject to a power of appointment created after October 21, 1942, is includable in the gross estate of the holder of the power under varying conditions depending on whether the power is (i) general in nature, (ii) possessed at death, or (iii) exercised or released. See paragraphs (b), (c), and (d) of §20.2041-1 for the definition of various terms used in this section. See paragraph (c) of this section for the rules applicable to determine the extent to which joint powers created after October 21, 1942, are to be treated as general powers of appointment.

(2) If the power is a general power of appointment, the value of an interest in property subject to such a power is includable in a decedent's gross estate under section 2041(a)(2) if either—

(i) The decedent has the power at the time of his death (and the interest exists at the time of his death), or

(ii) The decedent exercised or released the power, or the power lapsed, under the circumstances and to the extent described in paragraph (d) of this section.

(3) If the power is not a general power of appointment, the value of property subject to the power is includable in the holder's gross estate under section 2041(a)(3) only if it is exercised to create a further power under certain circumstances (see paragraph (e) of this section).

(b) Existence of power at death. For purposes of section 2041(a)(2), a power of appointment is considered to exist on the date of a decedent's death even though the exercise of the power is subject to the precedent giving of notice, or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise, whether or not on or before the decedent's death notice has been given or the power has been exercised. However, a power which by its terms is exercisable only upon the occurrence during the decedent's lifetime of an event or a contingency which did not in fact take place or occur during such time is not a power in existence on the date of the decedent's death. For example, if a decedent was given a general power of appointment exercisable only after he reached a certain age, only if he survived another person, or only if he died without descendants, the power would not be in existence on the date of the decedent's death if the condition precedent to its exercise had not occurred.

(c) Joint powers created after October 21, 1942. The treatment of a power of appointment created after October 21, 1942, which is exercisable only in conjunction with another person is governed by section 2041(b)(1)(C), which provides as follows:

(1) Such a power is not considered a general power of appointment if it is not exercisable by the decedent except with the consent or joinder of the creator of the power.

(2) Such power is not considered a general power of appointment if it is not exercisable by the decedent except with the consent or joinder of a person having a substantial interest in the property subject to the power which is adverse to the exercise of the power in favor of the decedent, his estate, his creditors, or the creditors of his estate. An interest adverse to the exercise of a power is considered as substantial if its value in relation to the total value of the property subject to the power is not insignificant. For this purpose, the interest is to be valued in accordance with the actuarial principles set forth in §20.2031-7 or, if it is not susceptible to valuation under those provisions, in accordance with the general principles set forth in §20.2031-1. A taker in default of appointment under a power has an interest which is adverse to an exercise of the power. A coholder of the power has no adverse interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power. However, a coholder of a power is considered as having an adverse interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate. Thus, for example, if X, Y, and Z held a power jointly to appoint among a group of persons which includes themselves and if on the death of X the power will pass to Y and Z jointly, then Y and Z are considered to have interests adverse to the exercise of the power in favor of X. Similarly, if on Y's death the power will pass to Z, Z is considered to have an interest adverse to the exercise of the power in favor of Y. The application of this subparagraph may be further illustrated by the following additional examples in each of which it is assumed that the value of the interest in question is substantial:

Example (1). The decedent and R were trustees of a trust under the terms of which the income was to be paid to the decedent for life and then to M for life, and the remainder was to be paid to R. The trustees had power to distribute corpus to the decedent. Since R's interest was substantially adverse to an exercise of the power in favor of the decedent the latter did not have a general power of appointment. If M and the decedent were the trustees, M's interest would likewise have been adverse.
Example (2). The decedent and L were trustees of a trust under the terms of which the income was to be paid to L for life and then to M for life, and the remainder was to be paid to the decedent. The trustees had power to distribute corpus to the decedent during L's life. Since L's interest was adverse to an exercise of the power in favor of the decedent, the decedent did not have a general power of appointment. If the decedent and M were the trustees, M's interest would likewise have been adverse.
Example (3). The decedent and L were trustees of a trust under the terms of which the income was to be paid to L for life. The trustees could designate whether corpus was to be distributed to the decedent or to A after L's death. L's interest was not adverse to an exercise of the power in favor of the decedent, and the decedent therefore had a general power of appointment.

(3) A power which is exercisable only in conjunction with another person, and which after application of the rules set forth in subparagraphs (1) and (2) of this paragraph constitutes a general power of appointment, will be treated as though the holders of the power who are permissible appointees of the property were joint owners of property subject to the power. The decedent, under this rule, will be treated as possessed of a general power of appointment over an aliquot share of the property to be determined with reference to the number of joint holders, including the decedent, who (or whose estates or creditors) are permissible appointees. Thus, for example, if X, Y, and Z hold an unlimited power jointly to appoint among a group of persons, including themselves, but on the death of X the power does not pass to Y and Z jointly, then Y and Z are not considered to have interests adverse to the exercise of the power in favor of X. In this case X is considered to possess a general power of appointment as to one-third of the property subject to the power.

(d) Releases, lapses, and disclaimers of general powers of appointment. (1) Property subject to a general power of appointment created after October 21, 1942, is includable in the gross estate of a decedent under section 2041(a)(2) even though he does not have the power at the date of his death, if during his life he exercised or released the power under circumstances such that, if the property subject to the power had been owned and transferred by the decedent, the property would be includable in the decedent's gross estate under section 2035, 2036, 2037, or 2038. Further, section 2041(b)(2) provides that the lapse of a power of appointment is considered to be a release of the power to the extent set forth in subparagraph (3) of this paragraph. A release of a power of appointment need not be formal or express in character. The principles set forth in §20.2041-2 for determining the application of the pertinent provisions of sections 2035 through 2038 to a particular exercise of a power of appointment are applicable for purposes of determining whether or not an exercise or release of a power of appointment created after October 21, 1942, causes the property to be included in a decedent's gross estate under section 2041(a)(2). If a general power of appointment created after October 21, 1942, is partially released, a subsequent exercise or release of the power under circumstances described in the first sentence of this subparagraph, or its possession at death will nevertheless cause the property subject to the power to be included in the gross estate of the holder of the power.

(2) Section 2041(a)(2) is not applicable to the complete release of a general power of appointment created after October 21, 1942, whether exercisable during life or by will, if the release was not made in contemplation of death within the meaning of section 2035, and if after the release the holder of the power retained no interest in or control over the property subject to the power which would cause the property to be included in his gross estate under sections 2036 through 2038 if the property had been transferred by the holder.

(3) The failure to exercise a power of appointment created after October 21, 1942, within a specified time, so that the power lapses, constitutes a release of the power. However, section 2041(b)(2) provides that such a lapse of a power of appointment during any calendar year during the decedent's life is treated as a release for purposes of inclusion of property in the gross estate under section 2041(a)(2) only to the extent that the property which could have been appointed by exercise of the lapsed power exceeds the greater of (i) $5,000 or (ii) 5 percent of the aggregate value, at the time of the lapse, of the assets out of which, or the proceeds of which, the exercise of the lapsed power could have been satisfied. For example, assume that A transferred $200,000 worth of securities in trust providing for payment of income to B for life with remainder to B's issue. Assume further that B was given a noncumulative right to withdraw $10,000 a year from the principal of the trust fund (which neither increased nor decreased in value prior to B's death). In such case, the failure of B to exercise his right of withdrawal will not result in estate tax with respect to the power to withdraw $10,000 which lapses each year before the year of B's death. At B's death there will be included in his gross estate the $10,000 which he was entitled to withdraw for the year in which his death occurs less any amount which he may have taken during that year. However, if in the above example B had possessed the right to withdraw $15,000 of the principal annually, the failure to exercise such power in any year will be considered a release of the power to the extent of the excess of the amount subject to withdrawal over 5 percent of the trust fund (in this example, $5,000, assuming that the trust fund is worth $200,000 at the time of the lapse). Since each lapse is treated as though B had exercised dominion over the trust property by making a transfer of principal reserving the income therefrom for his life, the value of the trust property (but only to the extent of the excess of the amount subject to withdrawal over 5 percent of the trust fund) is includable in B's gross estate (unless before B's death he has disposed of his right to the income under circumstances to which sections 2035 through 2038 would not be applicable). The extent to which the value of the trust property is included in the decedent's gross estate is determined as provided in subparagraph (4) of this paragraph.

(4) The purpose of section 2041(b)(2) is to provide a determination, as of the date of the lapse of the power, of the proportion of the property over which the power lapsed which is an exempt disposition for estate tax purposes and the proportion which, if the other requirements of sections 2035 through 2038 are satisfied, will be considered as a taxable disposition. Once the taxable proportion of any disposition at the date of lapse has been determined, the valuation of that proportion as of the date of the decedent's death (or, if the executor has elected the alternate valuation method under section 2032, the value as of the date therein provided), is to be ascertained in accordance with the principles which are applicable to the valuation of transfers of property by the decedent under the corresponding provisions of sections 2035 through 2038. For example, if the life beneficiary of a trust had a right exercisable only during one calendar year to draw down $50,000 from the corpus of a trust, which he did not exercise, and if at the end of the year the corpus was worth $800,000, the taxable portion over which the power lapsed is $10,000 (the excess of $50,000 over 5 percent of the corpus), or 180 of the total value. On the decedent's death, if the total value of the corpus of the trust (excluding income accumulated after the lapse of the power) on the applicable valuation date was $1,200,000, $15,000 ( 180 of $1,200,000) would be includable in the decedent's gross estate. However, if the total value was then $600,000, only $7,500 ( 180 of $600,000) would be includable.

(5) If the failure to exercise a power, such as a right of withdrawal, occurs in more than a single year, the proportion of the property over which the power lapsed which is treated as a taxable disposition will be determined separately for each such year. The aggregate of the taxable proportions for all such years, valued in accordance with the above principles, will be includable in the gross estate by reason of the lapse. The includable amount, however, shall not exceed the aggregate value of the assets out of which, or the proceeds of which, the exercise of the power could have been satisfied, valued as of the date of the decedent's death (or, if the executor has elected the alternate valuation method under section 2032, the value as of the date therein provided).

(6)(i) A disclaimer or renunciation of a general power of appointment created in a transfer made after December 31, 1976, is not considered to be the release of the power if the disclaimer or renunciation is a qualified disclaimer as described in section 2518 and the corresponding regulations. For rules relating to when the transfer creating the power occurs, see §25.2518-2(c)(3) of this chapter. If the disclaimer or renunciation is not a qualified disclaimer, it is considered a release of the power by the disclaimant.

(ii) The disclaimer or renunication of a general power of appointment created in a taxable transfer before January 1, 1977, in the person disclaiming is not considered to be a release of the power. The disclaimer or renunciation must be unequivocal and effective under local law. A disclaimer is a complete and unqualified refusal to accept the rights to which one is entitled. There can be no disclaimer or renunciation of a power after its acceptance. In the absence of facts to the contrary, the failure to renounce or disclaim within a reasonable time after learning of its existence will be presumed to constitute an acceptance of the power. In any case where a power is purported to be disclaimed or renounced as to only a portion of the property subject to the power, the determination as to whether or not there has been a complete and unqualified refusal to accept the rights to which one is entitled will depend on all the facts and circumstances of the particular case, taking into account the recognition and effectiveness of such a disclaimer under local law. Such rights refer to the incidents of the power and not to other interests of the decedent in the property. If effective under local law, the power may be disclaimed or renounced without disclaiming or renouncing such other interests.

(iii) The first and second sentences of paragraph (d)(6)(i) of this section are applicable for transfers creating the power to be disclaimed made on or after December 31, 1997.

(e) Successive powers. (1) Property subject to a power of appointment created after October 21, 1942, which is not a general power, is includable in the gross estate of the holder of the power under section 2041(a)(3) if the power is exercised, and if both of the following conditions are met:

(i) If the exercise is (a) by will, or (b) by a disposition which is of such nature that if it were a transfer of property owned by the decedent, the property would be includable in the decedent's gross estate under sections 2035 through 2037; and

(ii) If the power is exercised by creating another power of appointment which, under the terms of the instruments creating and exercising the first power and under applicable local law, can be validly exercised so as to (a) postpone the vesting of any estate or interest in the property for a period ascertainable without regard to the date of the creation of the first power, or (b) (if the applicable rule against perpetuities is stated in terms of suspension of ownership or of the power of alienation, rather than of vesting) suspend the absolute ownership or the power of alienation of the property for a period ascertainable without regard to the date of the creation of the first power.

(2) For purposes of the application of section 2041(a)(3), the value of the property subject to the second power of appointment is considered to be its value unreduced by any precedent or subsequent interest which is not subject to the second power. Thus, if a decedent has a power to appoint by will $100,000 to a group of persons consisting of his children and grandchildren and exercises the power by making an outright appointment of $75,000 and by giving one appointee a power to appoint $25,000, no more than $25,000 will be includable in the decedent's gross estate under section 2041(a)(3). If, however, the decedent appoints the income from the entire fund to a beneficiary for life with power in the beneficiary to appoint the remainder by will, the entire $100,000 will be includable in the decedent's gross estate under section 2041(a)(3) if the exercise of the second power can validly postpone the vesting of any estate or interest in the property or can suspend the absolute ownership or power of alienation of the property for a period ascertainable without regard to the date of the creation of the first power.

(f) Examples. The application of this section may be further illustrated by the following examples, in each of which it is assumed, unless otherwise stated, that S has transferred property in trust after October 21, 1942, with the remainder payable to R at L's death, and that neither L nor R has any interest in or power over the enjoyment of the trust property except as is indicated separately in each example:

Example (1). Income is directed to be paid to L during his lifetime at the end of each year, if living. L has an unrestricted power during his lifetime to cause the income to be distributed to any other person, but no power to cause it to be accumulated. At L's death, no part of the trust property is includable in L's gross estate since L had a power to dispose of only his income interest, a right otherwise possessed by him.
Example (2). Income is directed to be accumulated during L's life but L has a noncumulative power to distribute $10,000 of each year's income to himself. Unless L's power is limited to himself. Unless L's power is limited by an ascertainable standard (relating to his health, etc.), as defined in paragraph (c)(2) of §20.2041-1, he has a general power of appointment over $10,000 of each year's income, the lapse of which may cause a portion of any income not distriibuted to be included in his gross estate under section 2041. See subparagraphs (3), (4), and (5) of paragraph (d) of this section. Thus, if the trust income during the year amounts to $20,000, L's failure to distribute any of the income to himself constitutes a lapse as to $5,000 (i.e., the amount by which $10,000 exceeds $5,000). If L's power were cumulative (i.e., if the power did not lapse at the end of each year but lapsed only by reason of L's death), the total accumulations which L chose not to distribute to himself immediately before his death would be includable in his gross estate under section 2041.
Example (3). L is entitled to all the income during his lifetime and has an unrestricted power to cause corpus to be distributed to himself. L had a general power of appointment over the corpus of the trust, and the entire corpus as of the time of his death is includable in his gross estate under section 2041.
Example (4). Income was payable to L during his lifetime. R has an unrestricted power to cause corpus to be distributed to L. R dies before L. In such case, R has only a power to dispose of his remainder interest, the value of which is includable in his gross estate under section 2033, and nothing in addition would be includable under section 2041. If in this example R's remainder were contingent on his surviving L, nothing would be includable in his gross estate under either section 2033 or 2041. While R would have a power of appointment, it would not be a general power.
Example (5). Income was payable to L during his lifetime. R has an unrestricted power to cause corpus to be distributed to himself. R dies before L. While the value of R's remainder interest is includable in his gross estate under section 2033, R also has a general power of appointment over the entire trust corpus. Under such circumstances, the entire value of the trust corpus is includable in R's gross estate under section 2041.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 8095, 51 FR 28367, Aug. 7, 1986; T.D. 8744, 62 FR 68184, Dec. 31, 1997]

§20.2042-1   Proceeds of life insurance.

(a) In general. (1) Section 2042 provides for the inclusion in a decedent's gross estate of the proceeds of insurance on the decedent's life (i) receivable by or for the benefit of the estate (see paragraph (b) of this section) and (ii) receivable by other beneficiaries (see paragraph (c) of this section). The term “insurance” refers to life insurance of every description, including death benefits paid by fraternal beneficial societies operating under the lodge system.

(2) Proceeds of life insurance which are not includable in the gross estate under section 2042 may, depending upon the facts of the particular case, be includable under some other section of Part III of Subchapter A of Chapter 11. For example, if the decedent possessed incidents of ownership in an insurance policy on his life but gratuitously transferred all rights in the policy in contemplation of death, the proceeds would be includable under section 2035. Section 2042 has no application to the inclusion in the gross estate of the value of rights in an insurance policy on the life of a person other than the decedent, or the value of rights in a combination annuity contract and life insurance policy on the decedent's life (i.e., a “retirement income” policy with death benefit or an “endowment” policy) under which there was no insurance element at the time of the decedent's death (see paragraph (d) of §20.2039-1).

(3) Except as provided in paragraph (c)(6), the amount to be included in the gross estate under section 2042 is the full amount receivable under the policy. If the proceeds of the policy are made payable to a beneficiary in the form of an annuity for life or for a term of years, the amount to be included in the gross estate is the one sum payable at death under an option which could have been exercised either by the insured or by the beneficiary, or if no option was granted, the sum used by the insurance company in determining the amount of the annuity.

(b) Receivable by or for the benefit of the estate. (1) Section 2042 requires the inclusion in the gross estate of the proceeds of insurance on the decedent's life receivable by the executor or administrator, or payable to the decedent's estate. It makes no difference whether or not the estate is specifically named as the beneficiary under the terms of the policy. Thus, if under the terms of an insurance policy the proceeds are receivable by another beneficiary but are subject to an obligation, legally binding upon the other beneficiary, to pay taxes, debts, or other charges enforceable against the estate, then the amount of such proceeds required for the payment in full (to the extent of the beneficiary's obligation) of such taxes, debts, or other charges is includable in the gross estate. Similarly, if the decedent purchased an insurance policy in favor of another person or a corporation as collateral security for a loan or other accommodation, its proceeds are considered to be receivable for the benefit of the estate. The amount of the loan outstanding at the date of the decedent's death, with interest accrued to that date, will be deductible in determining the taxable estate. See §20.2053-4.

(2) If the proceeds of an insurance policy made payable to the decedent's estate are community assets under the local community property law and, as a result, one-half of the proceeds belongs to the decedent's spouse, then only one-half of the proceeds is considered to be receivable by or for the benefit of the decedent's estate.

(c) Receivable by other beneficiaries. (1) Section 2042 requires the inclusion in the gross estate of the proceeds of insurance on the decedent's life not receivable by or for the benefit of the estate if the decedent possessed at the date of his death any of the incidents of ownership in the policy, exercisable either alone or in conjunction with any other person. However, if the decedent did not possess any of such incidents of ownership at the time of his death nor transfer them in contemplation of death, no part of the proceeds would be includible in his gross estate under section 2042. Thus, if the decedent owned a policy of insurance on his life and, 4 years before his death, irrevocably assigned his entire interest in the policy to his wife retaining no reversionary interest therein (see subparagraph (3) of this paragraph), the proceeds of the policy would not be includible in his gross estate under section 2042.

(2) For purposes of this paragraph, the term “incidents of ownership” is not limited in its meaning to ownership of the policy in the technical legal sense. Generally speaking, the term has reference to the right of the insured or his estate to the economic benefits of the policy. Thus, it includes the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, to revoke an assignment, to pledge the policy for a loan, or to obtain from the insurer a loan against the surrender value of the policy, etc. See subparagraph (6) of this paragraph for rules relating to the circumstances under which incidents of ownership held by a corporation are attributable to a decedent through his stock ownership.

(3) The term “incidents of ownership” also includes a reversionary interest in the policy or its proceeds, whether arising by the express terms of the policy or other instrument or by operation of law, but only if the value of the reversionary interest immediately before the death of the decedent exceeded 5 percent of the value of the policy.

As used in this subparagraph, the term “reversionary interest” includes a possibility that the policy or its proceeds may return to the decedent or his estate and a possibility that the policy or its proceeds may become subject to a power of disposition by him. In order to determine whether or not the value of a reversionary interest immediately before the death of the decedent exceeded 5 percent of the value of the policy, the principles contained in paragraph (c) (3) and (4) of §20.2037-1, insofar as applicable, shall be followed under this subparagraph. In that connection, there must be specifically taken into consideration any incidents of ownership-held by others immediately before the decedent's death which would affect the value of the reversionary interest. For example, the decedent would not be considered to have a reversionary interest in the policy of a value in excess of 5 percent if the power to obtain the cash surrender value existed in some other person immediately before the decedent's death and was exercisable by such other person alone and in all events. The terms “reversionary interest” and “incidents of ownership” do not include the possibility that the decedent might receive a policy or its proceeds by inheritance through the estate of another person, or as a surviving spouse under a statutory right of election or a similar right.

(4) A decedent is considered to have an “incident of ownership” in an insurance policy on his life held in trust if, under the terms of the policy, the decedent (either alone or in conjunction with another person or persons) has the power (as trustee or otherwise) to change the beneficial ownership in the policy or its proceeds, or the time or manner of enjoyment thereof, even though the decedent has no beneficial interest in the trust. Moreover, assuming the decedent created the trust, such a power may result in the inclusion in the decedent's gross estate under section 2036 or 2038 of other property transferred by the decedent to the trust if, for example, the decedent has the power to surrender the insurance policy and if the income otherwise used to pay premiums on the policy would become currently payable to a beneficiary of the trust in the event that the policy were surrendered.

(5) As an additional step in determining whether or not a decedent possessed any incidents of ownership in a policy or any part of a policy, regard must be given to the effect of the State or other applicable law upon the terms of the policy. For example, assume that the decedent purchased a policy of insurance on his life with funds held by him and his surviving wife as community property, designating their son as beneficiary but retaining the right to surrender the policy. Under the local law, the proceeds upon surrender would have inured to the marital community. Assuming that the policy is not surrendered and that the son receives the proceeds on the decedent's death, the wife's transfer of her one-half interest in the policy was not considered absolute before the decedent's death. Upon the wife's prior death, one-half of the value of the policy would have been included in her gross estate. Under these circumstances, the power of surrender possessed by the decedent as agent for his wife with respect to one-half of the policy is not, for purposes of this section, an “incident of ownership”, and the decedent is, therefore, deemed to possess an incident of ownership in only one-half of the policy.

(6) In the case of economic benefits of a life insurance policy on the decedent's life that are reserved to a corporation of which the decedent is the sole or controlling stockholders, the corporations' incidents of ownership will not be attributed to the decedent through his stock ownership to the extent the proceeds of the policy are payable to the corporation. Any proceeds payable to a third party for a valid business purpose, such as in satisfaction of a business debt of the corporation, so that the net worth of the corporation is increased by the amount of such proceeds, shall be deemed to be payable to the corporation for purposes of the preceding sentence. See §20.2031-2(f) for a rule providing that the proceeds of certain life insurance policies shall be considered in determining the value of the decedent's stock. Except as hereinafter provided with respect to a group-term life insurance policy, if any part of the proceeds of the policy are not payable to or for the benefit of the corporation, and thus are not taken into account in valuing the decedent's stock holdings in the corporation for purposes of section 2031, any incidents of ownership held by the corporation as to that part of the proceeds will be attributed to the decedent through his stock ownership where the decedent is the sole or controlling stockholder. Thus, for example, if the decedent is the controlling stockholder in a corporation, and the corporation owns a life insurance policy on his life, the proceeds of which are payable to the decedent's spouse, the incidents of ownership held by the corporation will be attributed to the decedent through his stock ownership and the proceeds will be included in his gross estate under section 2042. If in this example the policy proceeds had been payable 40 percent to decedent's spouse and 60 percent to the corporation, only 40 percent of the proceeds would be included in decedent's gross estate under section 2042. For purposes of this subparagraph, the decedent will not be deemed to be the controlling stockholder of a corporation unless, at the time of his death, he owned stock possessing more than 50 percent of the total combined voting power of the corporation. Solely for purposes of the preceding sentence, a decedent shall be considered to be the owner of only the stock with respect to which legal title was held, at the time of his death, by (i) the decedent (or his agent or nominee); (ii) the decedent and another person jointly (but only the proportionate number of shares which corresponds to the portion of the total consideration which is considered to be furnished by the decedent for purposes of section 2040 and the regulations thereunder); and (iii) by a trustee of a voting trust (to the extent of the decedent's beneficial interest therein) or any other trust with respect to which the decedent was treated as an owner under Subpart E, Part I, Subchapter J, Chapter I of the Code immediately prior to his death. In the case of group-term life insurance, as defined in the regulations under section 79, the power to surrender or cancel a policy held by a corporation shall not be attributed to any decedent through his stock ownership.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960 as amended by T.D. 7312, 39 FR 14949, Apr. 29, 1974; T.D. 7623, 44 FR 28800, May 17, 1979]

§20.2043-1   Transfers for insufficient consideration.

(a) In general. The transfers, trusts, interests, rights or powers enumerated and described in sections 2035 through 2038 and section 2041 are not subject to the Federal estate tax if made, created, exercised, or relinquished in a transaction which constituted a bona fide sale for an adequate and full consideration in money or money's worth. To constitute a bona fide sale for an adequate and full consideration in money or money's worth, the transfer must have been made in good faith, and the price must have been an adequate and full equivalent reducible to a money value. If the price was less than such a consideration, only the excess of the fair market value of the property (as of the applicable valuation date) over the price received by the decedent is included in ascertaining the value of his gross estate.

(b) Marital rights and support obligations. For purposes of chapter 11, a relinquishment or promised relinquishment or dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, is not to any extent a consideration in “money or money's worth.”

§20.2044-1   Certain property for which marital deduction was previously allowed.

(a) In general. Section 2044 generally provides for the inclusion in the gross estate of property in which the decedent had a qualifying income interest for life and for which a deduction was allowed under section 2056(b)(7) or 2523(f). The value of the property included in the gross estate under section 2044 is not reduced by the amount of any section 2503(b) exclusion that applied to the transfer creating the interest. See section 2207A, regarding the right of recovery against the persons receiving the property that is applicable in certain cases.

(b) Passed from. For purposes of section 1014 and chapters 11 and 13 of subtitle B of the Internal Revenue Code, property included in a decedent's gross estate under section 2044 is considered to have been acquired from or to have passed from the decedent to the person receiving the property upon the decedent's death. Thus, for example, the property is treated as passing from the decedent for purposes of determining the availability of the charitable deduction under section 2055, the marital deduction under section 2056, and special use valuation under section 2032A. In addition, the tax imposed on property includible under section 2044 is eligible for the installment payment of estate tax under section 6166.

(c) Presumption. Unless established to the contrary, section 2044 applies to the entire value of the trust at the surviving spouse's death. If a marital deduction is taken on either the estate or gift tax return with respect to the transfer which created the qualifying income interest, it is presumed that the deduction was allowed for purposes of section 2044. To avoid the inclusion of property in the decedent-spouse's gross estate under this section, the executor of the spouse's estate must establish that a deduction was not taken for the transfer which created the qualifying income interest. For example, to establish that a deduction was not taken, the executor may produce a copy of the estate or gift tax return filed with respect to the transfer by the first spouse or the first spouse's estate establishing that no deduction was taken under section 2523(f) or section 2056(b)(7). In addition, the executor may establish that no return was filed on the original transfer by the decedent because the value of the first spouse's gross estate was below the threshold requirement for filing under section 6018. Similarly, the executor could establish that the transfer creating the decedent's qualifying income interest for life was made before the effective date of section 2056(b)(7) or section 2523(f).

(d) Amount included—(1) In general. The amount included under this section is the value of the entire interest in which the decedent had a qualifying income interest for life, determined as of the date of the decedent's death (or the alternate valuation date, if applicable). If, in connection with the transfer of property that created the decedent's qualifying income interest for life, a deduction was allowed under section 2056(b)(7) or section 2523(f) for less than the entire interest in the property (i.e., for a fractional or percentage share of the entire interest in the transferred property), the amount includible in the decedent's gross estate under this section is equal to the fair market value of the entire interest in the property on the date of the decedent's death (or the alternate valuation date, if applicable) multiplied by the fractional or percentage share of the interest for which the deduction was taken.

(2) Inclusion of income. If any income from the property for the period between the date of the transfer creating the decedent-spouse's interest and the date of the decedent-spouse's death has not been distributed before the decedent-spouse's death, the undistributed income is included in the decedent-spouse's gross estate under this section to the extent that the income is not so included under any other section of the Internal Revenue Code.

(3) Reduction of includible share in certain cases. If only a fractional or percentage share is includible under this section, the includible share is appropriately reduced if—

(i) The decedent-spouse's interest was in a trust and distributions of principal were made to the spouse during the spouse's lifetime;

(ii) The trust provides that the distributions are to be made from the qualified terminable interest share of the trust; and

(iii) The executor of the decedent-spouse's estate can establish the reduction in that share based on the fair market value of the trust assets at the time of each distribution.

(4) Interest in previously severed trust. If the decedent-spouse's interest was in a trust consisting of only qualified terminable interest property and the trust was severed (in compliance with §20.2056(b)-7(b) or §25.2523(f)-1(b) of this chapter) from a trust that, after the severance, held only property that was not qualified terminable interest property, only the value of the property in the severed portion of the trust is includible in the decedent-spouse's gross estate.

(e) Examples. The following examples illustrate the principles in paragraphs (a) through (d) of this section, where the decedent, D, was survived by spouse, S.

Example 1. Inclusion of trust subject to election, Under D's will, assets valued at $800,000 in D's gross estate (net of debts, expenses and other charges, including death taxes, payable from the property) passed in trust with income payable to S for life. Upon S's death, the trust principal is to be distributed to D's children. D's executor elected under section 2056(b)(7) to treat the entire trust property as qualified terminable interest property and claimed a marital deduction of $800,000. S made no disposition of the income interest during S's lifetime under section 2519. On the date of S's death, the fair market value of the trust property was $740,000. S's executor did not elect the alternate valuation date. The amount included in S's gross estate pursuant to section 2044 is $740,000.
Example 2. Inclusion of trust subject to partial election, The facts are the same as in Example 1, except that D's executor elected under section 2056(b)(7) with respect to only 50 percent of the value of the trust ($400,000). Consequently, only the equivalent portion of the trust is included in S's gross estate; i.e., $370,000 (50 percent of $740,000).
Example 3. Spouse receives qualifying income interest in a fraction of trust income, Under D's will, assets valued at $800,000 in D's gross estate (net of debts, expenses and other charges, including death taxes, payable from the property) passed in trust with 20 percent of the trust income payable to S for S's life. The will provides that the trust principal is to be distributed to D's children upon S's death. D's executor elected to deduct, pursuant to section 2056(b)(7), 50 percent of the amount for which the election could be made; i.e., $80,000 (50 percent of 20 percent of $800,000). Consequently, on the death of S, only the equivalent portion of the trust is included in S's gross estate; i.e., $74,000 (50 percent of 20 percent of $740,000).
Example 4. Distribution of corpus during spouse's lifetime, The facts are the same as in Example 3, except that S was entitled to receive all the trust income but the executor of D's estate elected under section 2056(b)(7) with respect to only 50 percent of the value of the trust ($400,000). Pursuant to authority in the will, the trustee made a discretionary distribution of $100,000 of principal to S in 1995 and charged the entire distribution to the qualified terminable interest share. Immediately prior to the distribution, the fair market value of the trust property was $1,100,000 and the qualified terminable interest portion of the trust was 50 percent. Immediately after the distribution, the qualified terminable interest portion of the trust was 45 percent ($450,000 divided by $1,000,000). Provided S's executor can establish the relevant facts, the amount included in S's gross estate is $333,000 (45 percent of $740,000).
Example 5. Spouse assigns a portion of income interest during life, Under D's will, assets valued at $800,000 in D's gross estate (net of debts, expenses and other charges, including death taxes, payable from the property) passed in trust with all the income payable to S, for S's life. The will provides that the trust principal is to be distributed to D's children upon S's death. D's executor elected under section 2056(b)(7) to treat the entire trust property as qualified terminable interest property and claimed a marital deduction of $800,000. During the term of the trust, S transfers to C the right to 40 percent of the income from the trust for S's life. Because S is treated as transferring the entire remainder interest in the trust corpus under section 2519 (as well as 40 percent of the income interest under section 2511), no part of the trust is includible in S's gross estate under section 2044. However, if S retains until death an income interest in 60 percent of the trust corpus (which corpus is treated pursuant to section 2519 as having been transferred by S for both gift and estate tax purposes), 60 percent of the property will be includible in S's gross estate under section 2036(a) and a corresponding adjustment is made in S's adjusted taxable gifts.
Example 6. Inter vivos trust subject to election under section 2523(f), D transferred $800,000 to a trust providing that trust income is to be paid annually to S, for S's life. The trust provides that upon S's death, $100,000 of principal is to be paid to X charity and the remaining principal distributed to D's children. D elected to treat all of the property transferred to the trust as qualified terminable interest property under section 2523(f). At the time of S's death, the fair market value of the trust is $1,000,000. S's executor does not elect the alternate valuation date. The amount included in S's gross estate is $1,000,000; i.e., the fair market value at S's death of the entire trust property. The $100,000 that passes to X charity on S's death is treated as a transfer by S to X charity for purposes of section 2055. Therefore, S's estate is allowed a charitable deduction for the $100,000 transferred from the trust to the charity to the same extent that a deduction would be allowed by section 2055 for a bequest by S to X charity.
Example 7. Spousal interest in the form of an annuity, D died prior to October 24, 1992, the effective date of the Energy Policy Act of 1992 (Pub. L. 102-486). See §20.2056(b)-7(e). Under D's will, assets valued at $500,000 in D's gross estate (net of debts, expenses and other charges, including death taxes, payable from the property) passed in trust pursuant to which an annuity of $20,000 a year was payable to S for S's life. Trust income not paid to S as an annuity is to be accumulated in the trust and may not be distributed during S's lifetime. D's estate deducted $200,000 under section 2056(b)(7) and §20.2056(b)-7(e)(2). S did not assign any portion of S's interest during S's life. At the time of S's death, the value of the trust property is $800,000. S's executor does not elect the alternate valuation date. The amount included in S's gross estate pursuant to section 2044 is $320,000 ([$200,000/$500,000]×$800,000).
Example 8. Inclusion of trust property when surviving spouse dies before first decedent's estate tax return is filed, D dies on July 1, 1997. Under the terms of D's will, a trust is established for the benefit of D's spouse, S. The will provides that S is entitled to receive the income from that portion of the trust that the executor elects to treat as qualified terminable interest property. The remaining portion of the trust passes as of D's date of death to a trust for the benefit of C, D's child. The trust terms otherwise provide S with a qualifying income interest for life under section 2056(b)(7)(B)(ii). S dies on February 10, 1998. On April 1, 1998, D's executor files D's estate tax return on which an election is made to treat a portion of the trust as qualified terminable interest property under section 2056(b)(7). S's estate tax return is filed on November 10, 1998. The value on the date of S's death of the portion of the trust for which D's executor made a QTIP election is includible in S's gross estate under section 2044.

[T.D. 8522, 59 FR 9646, Mar. 1, 1994, as amended by T.D. 8779, 63 FR 44393, Aug. 19, 1998]

§20.2044-2   Effective dates.

Except as specifically provided in Example 7 of §20.2044-1(e), the provisions of §20.2044-1 are effective with respect to estates of a decedent-spouse dying after March 1, 1994. With respect to estates of decedent-spouses dying on or before such date, taxpayers may rely on any reasonable interpretation of the statutory provisions. For these purposes, the provisions of §20.2044-1 (as well as project LR-211-76, 1984-1 C.B., page 598, see §601.601(d)(2)(ii)(b) of this chapter), are considered a reasonable interpretation of the statutory provisions.

[T.D. 8522, 59 FR 9647, Mar. 1, 1994]

§20.2045-1   Applicability to pre-existing transfers or interests.

Sections 2034 through 2042 are applicable regardless of when the interests and events referred to in those sections were created or took place, except as otherwise provided in those sections and the regulations thereunder.

[T.D. 6334, 23 FR 8904, Nov. 15, 1958; 25 FR 14021, Dec. 31, 1960. Redesignated by T.D. 8522, 59 FR 9646, Mar. 1, 1994]

§20.2046-1   Disclaimed property.

(a) This section shall apply to the disclaimer or renunciation of an interest in the person disclaiming by a transfer made after December 31, 1976. For rules relating to when the transfer creating the interest occurs, see §25.2518-2(c)(3) and (c)(4) of this chapter. If a qualified disclaimer is made with respect to such a transfer, the Federal estate tax provisions are to apply with respect to the property interest disclaimed as if the interest had never been transferred to the person making the disclaimer. See section 2518 and the corresponding regulations for rules relating to a qualified disclaimer.

(b) The first and second sentences of this section are applicable for transfers creating the interest to be disclaimed made on or after December 31, 1997.

[T.D. 8744, 62 FR 68184, Dec. 31, 1997]

Actuarial Tables Applicable Before May 1, 2009

§20.2031-7A   Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before May 1, 2009.

(a) Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before January 1, 1952. Except as otherwise provided in §20.2031-7(b), if the valuation date of the decedent's gross estate is before January 1, 1952, the present value of annuities, life estates, terms for years, remainders, and reversions is their present value determined under this section. If the valuation of the interest involved is dependent upon the continuation or termination of one or more lives or upon a term certain concurrent with one or more lives, the factor for the present value is computed on the basis of interest at the rate of 4 percent a year, compounded annually, and life contingencies as to each life involved from values that are based on the Actuaries' or Combined Experience Table of Mortality, as extended. This table and related factors are described in former §81.10 (as contained in the 26 CFR part 81 edition revised as of April 1, 1958). The present value of an interest measured by a term of years is computed on the basis of interest at the rate of 4 percent a year.

(b) Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is after December 31, 1951, and before January 1, 1971. Except as otherwise provided in §20.2031-7(b), if the valuation date for the decedent's gross estate is after December 31, 1951, and before January 1, 1971, the present value of annuities, life estates, terms of years, remainders, and reversions is their present value determined under this section. If the valuation of the interest involved is dependent upon the continuation or termination of one or more lives, or upon a term certain concurrent with one or more lives, the factor for the present value is computed on the basis of interest at the rate of 312 percent a year, compounded annually, and life contingencies as to each life involved are taken from U.S. Life Table 38. This table and related factors are set forth in former §20.2031-7 (as contained in the 26 CFR part 20 edition revised as of April 1, 1984). Special factors involving one and two lives may be found in or computed with the use of tables contained in the publication entitled “Actuarial Values for Estate and Gift Tax,” Internal Revenue Service Publication Number 11 (Rev. 5-59). This publication is no longer available for purchase from the Superintendent of Documents. However, it may be obtained by requesting a copy from: CC:DOM:CORP:T:R (IRS Publication 11), room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. The present value of an interest measured by a term of years is computed on the basis of interest at the rate of 312 percent a year.

(c) Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is after December 31, 1970, and before December 1, 1983. Except as otherwise provided in §20.2031-7(b), if the valuation date of the decedent's gross estate is after December 31, 1970, and before December 1, 1983, the present value of annuities, life estates, terms of years, remainders, and reversions is their present value determined under this section. If the valuation of the interest involved is dependent upon the continuation of or termination of one or more lives or upon a term certain concurrent with one or more lives, the factor for the present value is computed on the basis of interest at the rate of 6 percent a year, compounded annually, and life contingencies are determined as to each male and female life involved, from values that are set forth in Table LN. Table LN contains values that are taken from the life table for total males and the life table for total females appearing as Tables 2 and 3, respectively, in United States Life Tables: 1959- 1960, published by the Department of Health and Human Services, Public Health Service. Table LN and related factors are set forth in former §20.2031-10 (as contained in the 26 CFR part 20 edition revised as of April 1, 1994). Special factors involving one and two lives may be found in or computed with the use of tables contained in Internal Revenue Service Publication 723, “Actuarial Values I: Valuation of Last Survivor Charitable Remainders,” (12-70), and Internal Revenue Service Publication 723A, “Actuarial Values II: Factors at 6 Percent Involving One and Two Lives,” (12-70). These publications are no longer available for purchase from the Superintendent of Documents. However, a copy of each may be obtained from: CC:DOM:CORP:T:R (IRS Publication 723/723A), room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044.

(d) Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is after November 30, 1983, and before May 1, 1989—(1) In general. (i) Except as otherwise provided in §20.2031-7(b), if the decedent died after November 30, 1983, and the valuation date for the gross estate is before May 1, 1989, the fair market value of annuities, life estates, terms of years, remainders, and reversions is their present value determined under this section. If the decedent died after November 30, 1983, and before August 9, 1984, or, in cases where the valuation date of the decedent's gross estate is before May 1, 1989, if, on December 1, 1983, the decedent was mentally incompetent so that the disposition of the decedent's property could not be changed, and the decedent died on or after December 1, 1983, without having regained competency to dispose of the decedent's property, or if the decedent died within 90 days of the date on which the decedent first regained competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions included in the gross estate of such decedent is their present value determined under either this section or §20.2031-7A(c), at the option of the taxpayer. The value of annuities issued by companies regularly engaged in their sale, and of insurance policies on the lives of persons other than the decedent, is determined under §20.2031-8. The fair market value of a remainder interest in a charitable remainder unitrust, as defined in §1.664-3 of this chapter, is its present value determined under §1.664-4 of this chapter. The fair market value of a life interest or term for years in a charitable remainder unitrust is the fair market value of the property as of the date of valuation less the fair market value of the remainder interest on such date determined under §1.664-4 of this chapter. The fair market value of the interests in a pooled income fund, as defined in §1.642(c)-5 of this chapter, is their value determined under §1.642(c)-6 of this chapter.

(ii) The present value of an annuity, life estate, remainder, or reversion determined under this section which is dependent on the continuation or termination of the life of one person is computed by the use of Table A in paragraph (d)(6) of this section. The present value of an annuity, term for years, remainder, or reversion dependent on a term certain is computed by the use of Table B in paragraph (d)(6) of this section. If the interest to be valued is dependent upon more than one life or there is a term certain concurrent with one or more lives, see paragraph (d)(5) of this section. For purposes of the computations described in this section, the age of a person is to be taken as the age of that person at his or her nearest birthday.

(iii) In all examples set forth in this section, the decedent is assumed to have died on or after August 9, 1984, with the valuation date of the decedent's gross estate before May 1, 1989, and to have been competent to change the disposition of the property on December 1, 1983.

(2) Annuities. (i) If an annuity is payable annually at the end of each year during the life of an individual (as for example if the first payment is due one year after the decedent's death), the amount payable annually is multiplied by the figure in column 2 of Table A opposite the number of years in coumn 1 nearest the age of the individual whose life measures the duration of the annuity. If the annuity is payable annually at the end of each of year for a definite number of years, the amount payable annually is multiplied by the figure in column 2 of Table B opposite the number of years in column 1 representing the duration of the annuity. The application of this paragraph (d)(2)(i) may be illustrated by the following examples:

Example (1). The decedent received, under the terms of the decedent's father's will an annuity of $10,000 a year payable annually for the life of the decedent's elder brother. At the time the decedent died, an annual payment had just been made. The brother at the decedent's death was 40 years eight months old. By reference to Table A, the figure in column 2 opposite 41 years, the number nearest to the brother's actual age, is found to be 9.1030. The present value of the annuity at the date of the decedent's death is, therefore, $91,030 ($10,000×9.1030).
Example (2). The decedent was entitled to receive an annuity of $10,000 a year payable annually throughout a term certain. At the time the decedent died, the annual payment had just been made and five more annual payments were still to be made. By reference to Table B, it is found that the figure in column 2 opposite five years is 3.7908. The present value of the annuity is, therefore, $37,908 ($10,000×3.7808).

(ii) If an annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods during the life of an individual (as for example if the first payment is due one month after the decedent's death), the aggregate amount to be paid within a year is first multiplied by the figure in column 2 of Table A opposite the number of years in column 1 nearest the age of the individual whose life measures the duration of the annuity. The product so obtained is then multiplied by whichever of the following factors is appropriate:

1.0244   for semiannual payments,

1.0368   for quarterly payments,

1.0450   for monthly payments,

1.0482   for weekly payments.

If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods for a definite number of years, the aggregate amount to be paid within a year is first multiplied by the figure in column 2 of Table B opposite the number of years in column 1 representing the duration of the annuity. The product so obtained is then multiplied by whichever of the above factors is appropriate. The application of this paragraph (d)(2)(ii) may be illustrated by the following example:

Example. The facts are the same as those contained in example (1) set forth in paragraph (d)(2)(i) of this section, except that the annuity is payable semiannually. The aggregate annual amount, $10,000, is multiplied by the factor 9.1030 and the product multiplied by 1.0244. The present value of the annuity at the date of the decedent's death is, therefore, $93,251.13 ($10,000×9.1030×1.0244).

(iii)(A) If the first payment of an annuity for the life of an individual is due at the beginning of the annual or other payment period rather than at the end (as for example if the first payment is to be made immediately after the decedent's death), the value of the annuity is the sum of (A) the first payment plus (B) the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in paragraphs (d)(2)(i) or (ii) of this section. the application of this paragraph (d)(2)(iii)(A) may be illustrated by the following example:

Example. The decedent was entitled to receive an annuity of $50 a month during the life of another person. The decedent died on the date the payment was due. At the date of the decedent's death, the person whose life measures the duration of the annuity was 50 years of age. The value of the annuity at the date of the decedent's death is $50 plus the product of $50×12×8.4743 (see Table A)×1.0450 (See paragraph (d)(2)(ii) of this section). That is $50 plus $5,313.39, or $5,363.39.

(B) If the first payment of an annuity for a definite number of years is due at the beginning of the annual or other payment period, the applicable factor is the product of the factor shown in Table B multiplied by whichever of the following factors is appropriate:

1.1000   for annual payments,

1.0744   for semiannual payments,

1.0618   for quarterly payments,

1.0534   for monthly payments,

1.0502   for weekly payments.

The application of this paragraph (d)(2)(iii)(B) may be illustrated by the following example:

Example. The decedent was the beneficiary of an annuity of $50 a month. On the day a payment was due, the decedent died. There were 300 payments to be made, including the payment due. The value of the annuity as of the date of decedent's death is the product of $50×12×9.0770 (see Table B)×1.0534, or $5,737.03.

(3) Life estates and terms for years. If the interest to be valued is the right of a person for his or her life, or for the life of another person, to receive the income of certain property or to use nonincome-producing property, the value of the interest is the value of the property multiplied by the figure in column 3 of Table A opposite the number of years nearest to the actual age of the measuring life. If the interest to be valued is the right to receive income of property or to use nonincome-producing property for a term of years, column 3 of Table B is used. The application of this paragraph (d)(3) may be illustrated by the following example:

Example. The decedent or the decedent's estate was entitled to receive the income from a fund of $50,000 during the life of the decedent's elder brother. Upon the brother's death, the remainder is to go to B. The brother was 31 years, five months old at the time of decedent's death. By reference to Table A the figure in column 3 opposite 31 years is found to be 0.95254. The present value of the decedent's interest is, therefore, $47,627 ($50,000×0.95254).

(4) Remainders or reversionary interests. If a decedent had, at the time of the decedent's death, a remainder or a reversionary interest in property to take effect after an estate for the life of another, the present value of the decedent's interest is obtained by multiplying the value of the property by the figure in column 4 of Table A opposite the number of years nearest to the actual age of the person whose life measures the preceding estate. If the remainder or reversion is to take effect at the end of the term for years, column 4 of Table B is used. The application of this paragraph (d)(4) may be illustrated by the following example:

Example. The decedent was entitled to receive certain property worth $50,000 upon the death of the decedent's elder sister, to whom the income was bequeathed for life. At the time of the decedent's death, the elder sister was 31 years five months old. By reference to Table A the figure in column 4 opposite 31 years is found to be .04746. The present value of the remainder interest at the date of the decedent's death is, therefore, $2,373 ($50,000×.04746).

(5) Actuarial computations by the Internal Revenue Service. If the valuation of the interest involved is dependent upon the continuation or the termination of more than one life or upon a term certain concurrent with one or more lives a special factor must be used. The factor is to be computed on the basis of interest at the rate of 10 percent a year, compounded annually, and life contingencies determined, as to each person involved, from the values of lx that are set forth in column 2 of Table LN of paragraph (d)(6). Table LN contains values of lx taken from the life table for the total population appearing as Table 1 of United States Life Tables: 1969-71, published by the Department of Health and Human Services, Public Health Service. Many special factors involving one and two lives may be found in or computed with the use of the tables contained in Internal Revenue Service Publication 723E, “Actuarial Values II: Factors at 10 Percent Involving One and Two Lives,” (12-83). This publication is no longer available for purchase from the Superintendent of Documents. However, it may be obtained by requesting a copy from: CC:DOM:CORP:T:R (IRS Publication 723E), room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. However, if a special factor is required in the case of an actual decedent, the Commissioner will furnish the factor to the executor upon request. The request must be accompanied by a statement of the date of birth of each person, the duration of whose life may affect the value of the interest, and by copies of the relevant instruments. Special factors are not furnished for prospective transfers.

(6) Tables. The following tables shall be used in the application of the provisions of this section:

Table A—Single Life, Unisex, 10 Percent—Table Showing the Present Worth of an Annuity, of a Life Estate, and a Remainder Interest—Applicable for Transfers After November 30, 1983, and Before May 1, 1989

(1) Age(2) Annuity(3) Life estate(4) Remainder
09.7188.97188.02812
19.8988.98988.01012
29.9017.99017.00983
39.9008.99008.00992
49.8981.98981.01019
59.8938.98938.01062
69.8884.98884.01116
79.8822.98822.01178
89.8748.98748.01252
99.8663.98663.01337
109.8565.98565.01435
119.8453.98453.01547
129.8329.98329.01671
139.8198.98198.01802
149.8066.98066.01934
159.7937.97937.02063
169.7815.97815.02185
179.7700.97700.02300
189.7590.97590.02410
199.7480.97480.02520
209.7365.97365.02635
219.7245.97245.02755
229.7120.97120.02880
239.6986.96986.03014
249.6841.96841.03159
259.6678.96678.03322
269.6495.96495.03505
279.6290.96290.03710
289.6062.96062.03938
299.5813.95813.04187
309.5543.95543.04457
319.5254.95254.04746
329.4942.94942.05058
339.4608.94608.05392
349.4250.94250.05750
359.3868.93868.06132
369.3460.93460.06540
379.3026.93026.06974
389.2567.92567.07433
399.2083.92083.07917
409.1571.91571.08429
419.1030.91030.08970
429.0457.90457.09543
438.9855.89855.10145
448.9221.89221.10779
458.8558.88558.11442
468.7863.87863.12137
478.7137.87137.12863
488.6374.86374.13626
498.5578.85578.14422
508.4743.84743.15257
518.3874.83874.16126
528.2969.82969.17031
538.2028.82028.17972
548.1054.81054.18946
558.0046.80046.19954
567.9006.79006.20994
577.7931.77931.22069
587.6822.76822.23178
597.5675.75675.24325
607.4491.74491.25509
617.3267.73267.26733
627.2002.72002.27998
637.0696.70696.29304
646.9352.69352.30648
656.7970.67970.32030
666.6551.66551.33449
676.5098.65098.34902
686.3610.63610.36390
696.2086.62086.37914
706.0522.60522.39478
715.8914.58914.41086
725.7261.57261.42739
735.5571.55571.44429
745.3862.53862.46138
755.2149.52149.47851
765.0441.50441.49559
774.8742.48742.51258
784.7049.47049.52951
794.5357.45357.54643
804.3659.43659.56341
814.1967.41967.58033
824.0295.40295.59705
833.8642.38642.61358
843.6998.36998.63002
853.5359.35359.64641
863.3764.33764.66236
873.2262.32262.67738
883.0859.30859.69141
892.9526.29526.70474
902.8221.28221.71779
912.6955.26955.73045
922.5771.25771.74229
932.4692.24692.75308
942.3728.23728.76272
952.2887.22887.77113
962.2181.22181.77819
972.1550.21550.78450
982.1000.21000.79000
992.0486.20486.79514
1001.9975.19975.80025
1011.9532.19532.80468
1021.9054.19054.80946
1031.8437.18437.81563
1041.7856.17856.82144
1051.6962.16962.83038
1061.5488.15488.84512
1071.3409.13409.86591
1081.0068.10068.89932
109.4545.04545.95455

Table B—Term Certain, Unisex, 10 Percent—Table Showing the Present Worth of an Annuity for a Term Certain, of an Income Interest for a Term Certain, and of a Remainder Interest Postponed for a Term Certain—Applicable for Transfers After November 30, 1983, and before May 1, 1989

(1) Number of years(2) Annuity(3) Term certain(4) Remainder
1.9091.090909.909091
21.7355.173554.826446
32.4869.248685.751315
43.1699.316987.683013
53.7908.379079.620921
64.3553.435526.564474
74.8684.486842.513158
85.3349.533493.466507
95.7590.575902.424098
106.1446.614457.385543
116.4951.649506.350494
126.8137.681369.318631
137.1034.710336.289664
147.3667.736669.263331
157.6061.760608.239392
167.8237.782371.217629
178.0216.802155.197845
188.2014.820141.179859
198.3649.836492.163508
208.5136.851356.148644
218.6487.864869.135131
228.7715.877154.122846
238.8832.888322.111678
248.9847.898474.101526
259.0770.907704.092296
269.1609.916095.083905
279.2372.923722.076278
289.3066.930657.069343
299.3696.936961.063039
309.4269.942691.057309
319.4790.947901.052099
329.5264.952638.047362
339.5694.956943.043057
349.6086.960857.039143
359.6442.964416.035584
369.6765.967651.032349
379.7059.970592.029408
389.7327.973265.026735
399.7570.975696.024304
409.7791.977905.022095
419.7991.979914.020086
429.8174.981740.018260
439.8340.983400.016600
449.8491.984909.015091
459.8628.986281.013719
469.8753.987528.012472
479.8866.988662.011338
489.8969.989693.010307
499.9063.990630.009370
509.9140.991481.008519
519.9226.992256.007744
529.9296.992960.007040
539.9360.993600.006400
549.9418.994182.005818
559.9471.994711.005289
569.9519.995191.004809
579.9563.995629.004371
589.9603.996026.003974
599.9639.996387.003613
609.9672.996716.003284

Table LN—Applicable for Transfers After November 30, 1983, and Before May 1, 1989

(1) Age X(2) lx
0100,000
197,998
297,876
397,792
497,724
597,668
697,619
797,573
897,531
997,494
1097,460
1197,430
1297,401
1397,367
1497,322
1597,261
1697,181
1797,083
1896,970
1996,846
2096,716
2196,580
2296,438
2396,292
2496,145
2596,000
2695,859
2795,721
2895,586
2995,448
3095,307
3195,158
3295,003
3394,840
3494,666
3594,482
3694,285
3794,073
3893,843
3993,593
4093,322
4193,028
4292,712
4392,368
4491,995
4591,587
4691,144
4790,662
4890,142
4989,579
5088,972
5188,315
5287,605
5386,838
5486,007
5585,110
5684,142
5783,103
5881,988
5980,798
6079,529
6178,181
6276,751
6375,236
6473,631
6571,933
6670,139
6768,246
6866,254
6964,166
7061,984
7159,715
7257,360
7354,913
7452,363
7549,705
7646,946
7744,101
7841,192
7938,245
8035,285
8132,323
8229,375
8326,469
8423,638
8520,908
8618,282
8715,769
8813,407
8911,240
909,297
917,577
926,070
934,773
943,682
952,786
962,068
971,511
981,087
99772
100542
101375
102257
103175
104117
10578
10652
10734
10822
10914
1100

(e) Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is after April 30, 1989, and before May 1, 1999—(1) In general. Except as otherwise provided in §20.2031-7(b) and §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date for the gross estate of the decedent is after April 30, 1989, and before May 1, 1999, the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests is the present value of the interests determined by use of standard or special section 7520 actuarial factors and the valuation methodology described in §20.2031-7(d). These factors are derived by using the appropriate section 7520 interest rate and, if applicable, the mortality component for the valuation date of the interest that is being valued. See §§20.7520-1 through 20.7520-4. See paragraph (e)(4) of this section for determination of the appropriate table for use in valuing these interests.

(2) Transitional rule. (i) If the valuation date is after April 30, 1989, and before June 10, 1994, a taxpayer can rely on Notice 89-24 (1989-1 C.B. 660), or Notice 89-60 (1989-1 C.B. 700). See §601.601(d)(2)(ii)(b) of this chapter.

(ii) If a decedent dies after April 30, 1989, and if on May 1, 1989, the decedent was mentally incompetent so that the disposition of the decedent's property could not be changed, and the decedent dies without having regained competency to dispose of the decedent's property or dies within 90 days of the date on which the decedent first regains competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions included in the gross estate of the decedent is their present value determined either under this section or under the corresponding section applicable at the time the decedent became mentally incompetent, at the option of the decedent's executor. For example, see paragraph (d) of this section.

(3) Publications and actuarial computations by the Internal Revenue Service. Many standard actuarial factors not included in paragraph (e)(4) of this section or in §20.2031-7(d)(6) are included in Internal Revenue Service Publication 1457, “Actuarial Values, Alpha Volume,” (8-89). Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. Publication 1457 is no longer available for purchase from the Superintendent of Documents, United States Government Printing Office, Washington, DC 20402. However, pertinent factors in this publication may be obtained from: CC:DOM:CORP:R (IRS Publication 1457), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. If a special factor is required in the case of an actual decedent, the Internal Revenue Service may furnish the factor to the executor upon a request for a ruling. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the decedent's death, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b) of this chapter) and include payment of the required user fee.

(4) Actuarial tables. Except as provided in §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), Life Table 80CNSMT and Table S (Single life remainder factors applicable where the valuation date is after April 30, 1989, and before May 1, 1999), contained in this paragraph (e)(4), and Table B, Table J, and Table K set forth in §20.2031-7(d)(6) must be used in the application of the provisions of this section when the section 7520 interest rate component is between 4.2 and 14 percent. Table S and Table 80CNSMT are as follows:

Table S—Based on Life Table 80CNSMT Single Life Remainder Factors

[Applicable After April 30, 1989, and Before May 1, 1999]

AgeInterest rate
4.2%4.4%4.6%4.8%5.0%5.2%5.4%5.6%5.8%6.0%
0.07389.06749.06188.05695.05261.04879.04541.04243.03978.03744
1.06494.05832.05250.04738.04287.03889.03537.03226.02950.02705
2.06678.05999.05401.04874.04410.03999.03636.03314.03028.02773
3.06897.06200.05587.05045.04567.04143.03768.03435.03139.02875
4.07139.06425.05796.05239.04746.04310.03922.03578.03271.02998
5.07401.06669.06023.05451.04944.04494.04094.03738.03421.03137
6.07677.06928.06265.05677.05156.04692.04279.03911.03583.03289
7.07968.07201.06521.05918.05381.04903.04477.04097.03757.03453
8.08274.07489.06792.06172.05621.05129.04689.04297.03945.03630
9.08597.07794.07079.06443.05876.05370.04917.04511.04148.03821
10.08936.08115.07383.06730.06147.05626.05159.04741.04365.04027
11.09293.08453.07704.07035.06436.05900.05419.04988.04599.04250
12.09666.08807.08040.07354.06739.06188.05693.05248.04847.04486
13.10049.09172.08387.07684.07053.06487.05977.05518.05104.04731
14.10437.09541.08738.08017.07370.06788.06263.05791.05364.04978
15.10827.09912.09090.08352.07688.07090.06551.06064.05623.05225
16.11220.10285.09445.08689.08008.07394.06839.06337.05883.05472
17.11615.10661.09802.09028.08330.07699.07129.06612.06144.05719
18.12017.11043.10165.09373.08656.08009.07422.06890.06408.05969
19.12428.11434.10537.09726.08992.08327.07724.07177.06679.06226
20.12850.11836.10919.10089.09337.08654.08035.07471.06959.06492
21.13282.12248.11311.10462.09692.08991.08355.07775.07247.06765
22.13728.12673.11717.10848.10059.09341.08686.08090.07546.07049
23.14188.13113.12136.11248.10440.09703.09032.08418.07858.07345
24.14667.13572.12575.11667.10839.10084.09395.08764.08187.07659
25.15167.14051.13034.12106.11259.10486.09778.09130.08536.07991
26.15690.14554.13517.12569.11703.10910.10184.09518.08907.08346
27.16237.15081.14024.13056.12171.11359.10614.09930.09302.08724
28.16808.15632.14555.13567.12662.11831.11068.10366.09720.09125
29.17404.16208.15110.14104.13179.12329.11547.10827.10163.09551
30.18025.16808.15692.14665.13721.12852.12051.11313.10631.10002
31.18672.17436.16300.15255.14291.13403.12584.11827.11127.10480
32.19344.18090.16935.15870.14888.13980.13142.12367.11650.10985
33.20044.18772.17598.16514.15513.14587.13730.12936.12201.11519
34.20770.19480.18287.17185.16165.15221.14345.13533.12780.12080
35.21522.20215.19005.17884.16846.15883.14989.14159.13388.12670
36.22299.20974.19747.18609.17552.16571.15660.14812.14022.13287
37.23101.21760.20516.19360.18286.17288.16358.15492.14685.13933
38.23928.22572.21311.20139.19048.18032.17085.16201.15377.14607
39.24780.23409.22133.20945.19837.18804.17840.16939.16097.15310
40.25658.24273.22982.21778.20654.19605.18624.17706.16847.16043
41.26560.25163.23858.22639.21499.20434.19436.18502.17627.16806
42.27486.26076.24758.23525.22370.21289.20276.19326.18434.17597
43.28435.27013.25683.24436.23268.22172.21143.20177.19270.18416
44.29407.27975.26633.25373.24191.23081.22038.21057.20134.19265
45.30402.28961.27608.26337.25142.24019.22962.21966.21028.20144
46.31420.29970.28608.27326.26120.24983.23913.22904.21951.21053
47.32460.31004.29632.28341.27123.25975.24892.23870.22904.21991
48.33521.32058.30679.29379.28151.26992.25897.24862.23883.22957
49.34599.33132.31746.30438.29201.28032.26926.25879.24888.23949
50.35695.34224.32833.31518.30273.29094.27978.26921.25918.24966
51.36809.35335.33940.32619.31367.30180.29055.27987.26973.26010
52.37944.36468.35070.33744.32486.31292.30158.29081.28057.27083
53.39098.37622.36222.34892.33629.32429.31288.30203.29170.28186
54.40269.38794.37393.36062.34795.33590.32442.31349.30308.29316
55.41457.39985.38585.37252.35983.34774.33621.32522.31474.30473
56.42662.41194.39796.38464.37193.35981.34824.33720.32666.31658
57.43884.42422.41028.39697.38426.37213.36053.34945.33885.32872
58.45123.43668.42279.40951.39682.38468.37307.36196.35132.34114
59.46377.44931.43547.42224.40958.39745.38584.37471.36405.35383
60.47643.46206.44830.43513.42250.41040.39880.38767.37699.36674
61.48916.47491.46124.44814.43556.42350.41192.40080.39012.37985
62.50196.48783.47427.46124.44874.43672.42518.41408.40340.39314
63.51480.50081.48736.47444.46201.45006.43856.42749.41684.40658
64.52770.51386.50054.48773.47540.46352.45208.44105.43043.42019
65.54069.52701.51384.50115.48892.47713.46577.45480.44422.43401
66.55378.54029.52727.51472.50262.49093.47965.46876.45824.44808
67.56697.55368.54084.52845.51648.50491.49373.48293.47248.46238
68.58026.56717.55453.54231.53049.51905.50800.49729.48694.47691
69.59358.58072.56828.55624.54459.53330.52238.51179.50154.49160
70.60689.59427.58205.57021.55874.54762.53683.52638.51624.50641
71.62014.60778.59578.58415.57287.56193.55131.54100.53099.52126
72.63334.62123.60948.59808.58700.57624.56579.55563.54577.53617
73.64648.63465.62315.61198.60112.59056.58029.57030.56059.55113
74.65961.64806.63682.62590.61527.60492.59485.58504.57550.56620
75.67274.66149.65054.63987.62948.61936.60950.59990.59053.58140
76.68589.67495.66429.65390.64377.63390.62427.61487.60570.59676
77.69903.68841.67806.66796.65811.64849.63910.62993.62097.61223
78.71209.70182.69179.68199.67242.66307.65393.64501.63628.62775
79.72500.71507.70537.69588.68660.67754.66867.65999.65151.64321
80.73768.72809.71872.70955.70058.69180.68320.67479.66655.65849
81.75001.74077.73173.72288.71422.70573.69741.68926.68128.67345
82.76195.75306.74435.73582.72746.71926.71123.70335.69562.68804
83.77346.76491.75654.74832.74026.73236.72460.71699.70952.70219
84.78456.77636.76831.76041.75265.74503.73756.73021.72300.71592
85.79530.78743.77971.77212.76466.75733.75014.74306.73611.72928
86.80560.79806.79065.78337.77621.76917.76225.75544.74875.74216
87.81535.80813.80103.79404.78717.78041.77375.76720.76076.75442
88.82462.81771.81090.80420.79760.79111.78472.77842.77223.76612
89.83356.82694.82043.81401.80769.80147.79533.78929.78334.77747
90.84225.83593.82971.82357.81753.81157.80570.79991.79420.78857
91.85058.84455.83861.83276.82698.82129.81567.81013.80466.79927
92.85838.85263.84696.84137.83585.83040.82503.81973.81449.80933
93.86557.86009.85467.84932.84405.83884.83370.82862.82360.81865
94.87212.86687.86169.85657.85152.84653.84160.83673.83192.82717
95.87801.87298.86801.86310.85825.85345.84872.84404.83941.83484
96.88322.87838.87360.86888.86420.85959.85502.85051.84605.84165
97.88795.88328.87867.87411.86961.86515.86074.85639.85208.84782
98.89220.88769.88323.87883.87447.87016.86589.86167.85750.85337
99.89612.89176.88745.88318.87895.87478.87064.86656.86251.85850
100.89977.89555.89136.88722.88313.87908.87506.87109.86716.86327
101.90326.89917.89511.89110.88712.88318.87929.87543.87161.86783
102.90690.90294.89901.89513.89128.88746.88369.87995.87624.87257
103.91076.90694.90315.89940.89569.89200.88835.88474.88116.87760
104.91504.91138.90775.90415.90058.89704.89354.89006.88661.88319
105.92027.91681.91337.90996.90658.90322.89989.89659.89331.89006
106.92763.92445.92130.91816.91506.91197.90890.90586.90284.89983
107.93799.93523.93249.92977.92707.92438.92170.91905.91641.91378
108.95429.95223.95018.94814.94611.94409.94208.94008.93809.93611
109.97985.97893.97801.97710.97619.97529.97438.97348.97259.97170

Table S—Based on Life Table 80CNSMT Single Life Remainder Factors

[Applicable After April 30, 1989, and Before May 1, 1999]

AgeInterest rate
6.2%6.4%6.6%6.8%7.0%7.2%7.4%7.6%7.8%8.0%
0.03535.03349.03183.03035.02902.02783.02676.02579.02492.02413
1.02486.02292.02119.01963.01824.01699.01587.01486.01395.01312
2.02547.02345.02164.02002.01857.01727.01609.01504.01408.01321
3.02640.02429.02241.02073.01921.01785.01662.01552.01451.01361
4.02753.02535.02339.02163.02005.01863.01735.01619.01514.01418
5.02883.02656.02453.02269.02105.01956.01822.01700.01590.01490
6.03026.02790.02578.02387.02215.02060.01919.01792.01677.01572
7.03180.02935.02714.02515.02336.02174.02027.01894.01773.01664
8.03347.03092.02863.02656.02469.02300.02146.02007.01881.01766
9.03528.03263.03025.02810.02615.02438.02278.02133.02000.01880
10.03723.03449.03201.02977.02774.02590.02423.02271.02133.02006
11.03935.03650.03393.03160.02949.02757.02583.02424.02279.02147
12.04160.03865.03598.03356.03136.02936.02755.02589.02438.02299
13.04394.04088.03811.03560.03331.03123.02934.02761.02603.02458
14.04629.04312.04025.03764.03527.03311.03113.02933.02768.02617
15.04864.04536.04238.03968.03721.03496.03290.03103.02930.02773
16.05099.04759.04451.04170.03913.03679.03466.03270.03090.02926
17.05333.04982.04662.04370.04104.03861.03638.03434.03247.03075
18.05570.05207.04875.04573.04296.04044.03812.03599.03404.03225
19.05814.05438.05095.04781.04494.04231.03990.03769.03565.03378
20.06065.05677.05321.04996.04698.04424.04173.03943.03731.03535
21.06325.05922.05554.05217.04907.04623.04362.04122.03901.03697
22.06594.06178.05797.05447.05126.04831.04559.04309.04078.03865
23.06876.06446.06051.05688.05355.05048.04766.04505.04265.04042
24.07174.06729.06321.05945.05599.05281.04987.04715.04465.04233
25.07491.07031.06609.06219.05861.05530.05224.04941.04680.04438
26.07830.07355.06918.06515.06142.05799.05481.05187.04915.04662
27.08192.07702.07250.06832.06446.06090.05759.05454.05170.04906
28.08577.08071.07603.07171.06772.06402.06059.05740.05445.05170
29.08986.08464.07981.07534.07120.06736.06380.06049.05742.05456
30.09420.08882.08383.07921.07492.07095.06725.06381.06061.05763
31.09881.09327.08812.08335.07891.07479.07095.06738.06405.06095
32.10369.09797.09267.08774.08315.07888.07491.07120.06774.06451
33.10885.10297.09750.09241.08767.08325.07913.07529.07170.06834
34.11430.10824.10261.09736.09246.08790.08363.07964.07592.07243
35.12002.11380.10800.10259.09754.09282.08841.08428.08041.07679
36.12602.11963.11366.10809.10288.09800.09344.08917.08516.08140
37.13230.12574.11961.11387.10850.10347.09876.09433.09018.08628
38.13887.13214.12584.11994.11441.10922.10436.09978.09549.09145
39.14573.13883.13237.12630.12061.11527.11025.10553.10109.09690
40.15290.14583.13920.13297.12712.12162.11644.11157.10698.10266
41.16036.15312.14633.13994.13393.12827.12294.11792.11318.10871
42.16810.16071.15375.14720.14103.13522.12973.12456.11967.11505
43.17614.16858.16146.15475.14842.14245.13682.13149.12645.12169
44.18447.17675.16948.16261.15613.15000.14421.13873.13355.12864
45.19310.18524.17780.17078.16414.15787.15192.14630.14096.13591
46.20204.19402.18644.17926.17247.16604.15995.15418.14870.14350
47.21128.20311.19538.18806.18112.17454.16830.16238.15676.15141
48.22080.21249.20462.19716.19007.18335.17696.17090.16513.15964
49.23059.22214.21413.20653.19930.19244.18591.17970.17379.16816
50.24063.23206.22391.21617.20881.20180.19514.18879.18274.17697
51.25095.24225.23398.22610.21861.21147.20466.19818.19199.18609
52.26157.25275.24436.23636.22874.22147.21453.20791.20159.19556
53.27249.26357.25505.24694.23919.23180.22474.21799.21154.20537
54.28369.27466.26604.25782.24995.24244.23526.22839.22181.21552
55.29518.28605.27734.26900.26103.25341.24611.23912.23243.22601
56.30695.29774.28893.28050.27242.26469.25728.25019.24338.23685
57.31902.30973.30084.29232.28415.27632.26881.26161.25469.24805
58.33138.32203.31306.30446.29621.28829.28069.27339.26637.25962
59.34402.33461.32558.31691.30859.30059.29290.28550.27839.27155
60.35690.34745.33836.32963.32124.31317.30540.29792.29073.28379
61.36999.36050.35137.34259.33414.32601.31817.31062.30334.29633
62.38325.37374.36458.35576.34726.33907.33117.32356.31621.30912
63.39669.38717.37799.36913.36060.35236.34441.33674.32933.32217
64.41031.40078.39159.38272.37415.36588.35789.35016.34270.33548
65.42416.41464.40545.39656.38798.37968.37166.36390.35639.34912
66.43825.42876.41958.41070.40211.39380.38576.37797.37043.36312
67.45260.44315.43399.42513.41655.40824.40019.39238.38482.37749
68.46720.45779.44868.43985.43129.42299.41494.40713.39956.39221
69.48197.47263.46357.45478.44625.43798.42995.42215.41458.40722
70.49686.48760.47861.46988.46140.45316.44516.43738.42983.42248
71.51182.50265.49374.48508.47666.46847.46051.45276.44523.43790
72.52685.51778.50896.50038.49203.48390.47599.46829.46079.45349
73.54194.53298.52426.51578.50751.49946.49161.48397.47652.46926
74.55714.54832.53972.53134.52317.51520.50744.49986.49247.48527
75.57250.56382.55536.54710.53904.53118.52351.51601.50870.50156
76.58803.57951.57120.56308.55515.54740.53984.53245.52522.51817
77.60369.59535.58720.57923.57144.56383.55639.54912.54200.53504
78.61942.61126.60329.59549.58787.58040.57310.56596.55896.55212
79.63508.62713.61935.61174.60428.59698.58983.58283.57597.56925
80.65059.64285.63527.62785.62058.61345.60646.59961.59290.58632
81.66579.65827.65090.64368.63659.62965.62283.61615.60959.60316
82.68061.67332.66616.65914.65226.64550.63886.63235.62595.61968
83.69499.68793.68099.67418.66749.66092.65447.64813.64191.63579
84.70896.70213.69541.68881.68233.67595.66969.66353.65748.65153
85.72256.71596.70947.70308.69681.69063.68456.67859.67271.66693
86.73569.72931.72305.71688.71081.70484.69896.69318.68748.68188
87.74818.74204.73599.73003.72417.71839.71271.70711.70159.69616
88.76011.75419.74836.74261.73695.73137.72588.72046.71512.70986
89.77169.76599.76037.75484.74938.74400.73870.73347.72831.72323
90.78302.77755.77215.76683.76158.75640.75129.74625.74128.73638
91.79395.78870.78352.77842.77337.76840.76349.75864.75385.74913
92.80423.79920.79423.78933.78449.77971.77499.77033.76572.76118
93.81377.80894.80417.79946.79481.79022.78568.78120.77677.77239
94.82247.81784.81325.80873.80425.79983.79547.79115.78688.78266
95.83033.82586.82145.81709.81278.80852.80431.80014.79602.79195
96.83729.83298.82872.82451.82034.81622.81215.80812.80414.80019
97.84361.83944.83532.83124.82721.82322.81927.81537.81151.80769
98.84929.84525.84126.83730.83339.82952.82569.82190.81815.81443
99.85454.85062.84674.84290.83910.83534.83161.82792.82427.82066
100.85942.85561.85184.84810.84440.84074.83711.83352.82997.82644
101.86408.86037.85670.85306.84946.84589.84236.83886.83539.83196
102.86894.86534.86177.85823.85473.85126.84782.84442.84104.83770
103.87408.87060.86714.86371.86032.85695.85362.85031.84703.84378
104.87980.87644.87311.86980.86653.86328.86005.85686.85369.85054
105.88684.88363.88046.87731.87418.87108.86800.86494.86191.85890
106.89685.89389.89095.88804.88514.88226.87940.87656.87374.87094
107.91117.90858.90600.90344.90089.89836.89584.89334.89085.88838
108.93414.93217.93022.92828.92634.92442.92250.92060.91870.91681
109.97081.96992.96904.96816.96729.96642.96555.96468.96382.96296

Table S—Based on Life Table 80CNSMT Single Life Remainder Factors

[Applicable After April 30, 1989, and Before May 1, 1999]

AgeInterest rate
8.2%8.4%8.6%8.8%9.0%9.2%9.4%9.6%9.8%10.0%
0.02341.02276.02217.02163.02114.02069.02027.01989.01954.01922
1.01237.01170.01108.01052.01000.00953.00910.00871.00834.00801
2.01243.01172.01107.01048.00994.00944.00899.00857.00819.00784
3.01278.01203.01135.01073.01016.00964.00916.00872.00832.00795
4.01332.01253.01182.01116.01056.01001.00951.00904.00862.00822
5.01400.01317.01241.01172.01109.01051.00998.00949.00904.00862
6.01477.01390.01310.01238.01171.01110.01054.01002.00954.00910
7.01563.01472.01389.01312.01242.01178.01118.01064.01013.00966
8.01660.01564.01477.01396.01322.01254.01192.01134.01081.01031
9.01770.01669.01577.01492.01414.01342.01276.01216.01159.01107
10.01891.01785.01688.01599.01517.01442.01372.01308.01249.01194
11.02026.01915.01814.01720.01634.01555.01481.01414.01351.01293
12.02173.02056.01950.01852.01761.01678.01601.01529.01463.01402
13.02326.02204.02092.01989.01895.01807.01726.01651.01582.01517
14.02478.02351.02234.02126.02027.01935.01850.01771.01698.01630
15.02628.02495.02372.02259.02155.02058.01969.01886.01810.01738
16.02774.02635.02507.02388.02279.02178.02084.01997.01917.01842
17.02917.02772.02637.02513.02399.02293.02194.02103.02018.01940
18.03059.02907.02767.02637.02517.02406.02302.02207.02118.02035
19.03205.03046.02899.02763.02637.02521.02412.02312.02218.02131
20.03355.03188.03035.02892.02760.02638.02524.02419.02320.02229
21.03509.03334.03173.03024.02886.02758.02638.02527.02424.02328
22.03669.03487.03318.03162.03017.02882.02757.02640.02532.02430
23.03837.03646.03470.03306.03154.03013.02881.02759.02644.02538
24.04018.03819.03634.03463.03303.03155.03016.02888.02767.02655
25.04214.04006.03812.03633.03465.03309.03164.03029.02902.02784
2