§2702 Special Valuation Rules in Case of Transfers of Interests in Trusts

Summary

When someone gives a trust interest to a family member, the law tells how to count the value the giver still keeps to decide if the transfer is a gift. If the thing the giver kept is not a "qualified interest," its value is treated as zero for gift rules. If it is a qualified interest, its value is figured using the rules in section 7520. This rule does not apply if the transfer is an incomplete gift (a transfer that would not be treated as a gift), if the trust only holds a personal residence used by the term holders, or to the extent regulations say the rule should not apply. The term "applicable family member" is defined in section 2701(e)(2). A "qualified interest" means one of three things: the right to fixed payments paid at least once a year, the right to a fixed percentage of the trust’s value paid at least once a year, or a guaranteed remainder interest when all other interests are the first two types. A transfer of property that has a life or term-of-years interest is treated like a transfer of a trust interest. If family members buy such property together, the buyer who gets the term interest is treated as having bought the whole property and then transferred parts to the others for whatever they paid. If not using rights under a term interest wouldn’t change the remainder’s value in tangible property, the zero rule does not apply and the term interest is valued at the price the holder could sell it to an unrelated buyer. Only the portion of trust property actually transferred is counted. "Member of the family" is defined in section 2704(c)(2).