PRIA, Government Policy, Made Personal

Summary

Property a person gave away during life must be counted in their estate if the gift was made after September 7, 1916, unless it was a real sale for full money. This happens when two things are true: the property could be received only by surviving the person who died, and the person kept a right that could bring the property back (a reversionary interest) whose value right before death was more than 5% of the property. For transfers made before October 8, 1949, that right counts only if the transfer document created it. A “reversionary interest” means the property might return to the person or be subject to their power to dispose of it, but not merely the income. The value is figured by normal valuation methods, including life tables and actuarial rules. If a beneficiary could have obtained the property during the person’s life by using a general power of appointment that was actually available right before death, then the property is not included.

Title 26, §2037

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time after September 7, 1916, made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, if—

(1)possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and

(2)the decedent has retained a reversionary interest in the property (but in the case of a transfer made before October 8, 1949, only if such reversionary interest arose by the express terms of the instrument of transfer), and the value of such reversionary interest immediately before the death of the decedent exceeds 5 percent of the value of such property.

(b)Special rules

For purposes of this section, the term “reversionary interest” includes a possibility that property transferred by the decedent—

(1)may return to him or his estate, or

(2)may be subject to a power of disposition by him,

but such term does not include a possibility that the income alone from such property may return to him or become subject to a power of disposition by him. The value of a reversionary interest immediately before the death of the decedent shall be determined (without regard to the fact of the decedent’s death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, under regulations prescribed by the Secretary. In determining the value of a possibility that property may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such property may return to the decedent or his estate. Notwithstanding the foregoing, an interest so transferred shall not be included in the decedent’s gross estate under this section 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.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”. 1962—Subsec. (a). Pub. L. 87–834 struck out provisions which excepted real property situated outside of the United States.

Statutory Notes and Related Subsidiaries

Effective Date

of 1962 AmendmentAmendment by Pub. L. 87–834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87–834, set out as a note under section 2031 of this title.

§2037 Transfers Taking Effect at Death