§2702 — Title 26 Internal Revenue Code | U.S. Code

Summary

When someone gives a trust interest to a family member, treat that transfer as a gift by figuring the value of whatever the giver or a family member keeps in the trust using special rules. If what they keep is not a "qualified interest," its value is treated as zero. If it is a "qualified interest," its value is figured under the usual tax valuation rules (section 7520). These rules do not apply if the gift is an incomplete gift, if the trust only holds a personal residence used by people with term interests, or if regulations say the rules should not apply. An "incomplete gift" means the transfer would not count as a gift no matter whether money changed hands. A "qualified interest" means one of three things: a right to fixed amounts paid at least once a year, a right to a fixed percent of the trust’s yearly value paid at least once a year, or a certain remainder interest when all other interests are like those two. A "term interest" means a life interest or an interest for a set number of years. If several family members get interests together, the law may treat one person as buying the whole property and then passing parts to the others. If not using a term interest in tangible property does not greatly change the remainder’s value, that term interest is valued as what the holder could sell it for to a stranger. Only the portion of trust property actually transferred is counted. "Member of the family" has the meaning in section 2704(c)(2).

Title 26, §2702

Internal Revenue Code — Source: USLM XML via OLRC

(a)(1)Solely for purposes of determining whether a transfer of an interest in trust to (or for the benefit of) a member of the transferor’s family is a gift (and the value of such transfer), the value of any interest in such trust retained by the transferor or any applicable family member (as defined in section 2701(e)(2)) shall be determined as provided in paragraph (2).

(2)(A)The value of any retained interest which is not a qualified interest shall be treated as being zero.

(B)The value of any retained interest which is a qualified interest shall be determined under section 7520.

(3)(A)This subsection shall not apply to any transfer—

(i)if such transfer is an incomplete gift,

(ii)if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal residence by persons holding term interests in such trust, or

(iii)to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section.

(B)For purposes of subparagraph (A), the term “incomplete gift” means any transfer which would not be treated as a gift whether or not consideration was received for such transfer.

(b)For purposes of this section, the term “qualified interest” means—

(1)any interest which consists of the right to receive fixed amounts payable not less frequently than annually,

(2)any interest which consists of the right to receive amounts which are payable not less frequently than annually and are a fixed percentage of the fair market value of the property in the trust (determined annually), and

(3)any noncontingent remainder interest if all of the other interests in the trust consist of interests described in paragraph (1) or (2).

(c)For purposes of this section—

(1)The transfer of an interest in property with respect to which there is 1 or more term interests shall be treated as a transfer of an interest in a trust.

(2)If 2 or more members of the same family acquire interests in any property described in paragraph (1) in the same transaction (or a series of related transactions), the person (or persons) acquiring the term interests in such property shall be treated as having acquired the entire property and then transferred to the other persons the interests acquired by such other persons in the transaction (or series of transactions). Such transfer shall be treated as made in exchange for the consideration (if any) provided by such other persons for the acquisition of their interests in such property.

(3)The term “term interest” means—

(A)a life interest in property, or

(B)an interest in property for a term of years.

(4)If the nonexercise of rights under a term interest in tangible property would not have a substantial effect on the valuation of the remainder interest in such property—

(A)subparagraph (A) of subsection (a)(2) shall not apply to such term interest, and

(B)the value of such term interest for purposes of applying subsection (a)(1) shall be the amount which the holder of the term interest establishes as the amount for which such interest could be sold to an unrelated third party.

(d)In the case of a transfer of an income or remainder interest with respect to a specified portion of the property in a trust, only such portion shall be taken into account in applying this section to such transfer.

(e)For purposes of this section, the term “member of the family” shall have the meaning given such term by section 2704(c)(2).

Notes & Related Subsidiaries

Editorial Notes

Amendments

1996—Subsec. (a)(3)(A)(i). Pub. L. 104–188, § 1702(f)(11)(A)(i), (ii), (B)(i), substituted “if” for “to the extent” and “incomplete gift” for “incomplete transfer”, and struck out “or” at end. Subsec. (a)(3)(A)(ii). Pub. L. 104–188, § 1702(f)(11)(A)(iii), substituted “, or” for period at end. Subsec. (a)(3)(A)(iii). Pub. L. 104–188, § 1702(f)(11)(A)(iv), added cl. (iii). Subsec. (a)(3)(B). Pub. L. 104–188, § 1702(f)(11)(B), substituted “incomplete gift” for “incomplete transfer” in heading and text.

Statutory Notes and Related Subsidiaries

Effective Date

of 1996 AmendmentAmendment by Pub. L. 104–188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104–188, set out as a note under section 38 of this title.

§2702 Special valuation rules in case of transfers of interests in trusts