§2036 — Transfers with retained life estate

§§ 2036(a)(2) and 2038 do not require inclusion of the policies’ cash-surrender values because D did not have any right, whether by herself or in conjunction with anyone else, to terminate the policies because only the irrevocable trust had that right. 4. Held, further, I.R.C. § 2703 applies only to property interests that D held at the time of her death. There were no restrictions on the split-dollar receivable, so I.R.C. § 2703 is inapplicable.

* * * Unlike the examples discussed above, because ofsection 2207B the estate tax burden in this case is not imposed on the surviving spouse's share ofthe estate and does not require a reduction in the marital deduction. Consequently, we conclude that respondent's reliance on section 20.2056(b)-4(c), Estate Tax Regs., is misplaced. Under section 2036 the gross estate includes the values ofthe section 2036 assets that Clyde Sr.

Section 2036 is intended to include in a decedent's gross estate inter vivos transfers that were testamentary in nature. United States v. Estate ofGrace, 395 U.S. 316, 320 (1969); Estate ofBongard v. Commissioner, 124 T.C. 95, 112 (2005). Accordingly, a decedent's gross estate includes the value ofall property that the decedent transferred but retained the possession or enjoyment of, or the right to the income from, for the decedent's life. Sec. 2036(a). This rule, however, does not apply in cas

Section 2036(a) Conclusion We have found that decedent's transfer ofproperty to the PFLLC was a bona fide transfer and that decedent received full and adequate consideration from the PFLLC as a result ofthe transfer. Because decedent's transfer was bona fide and for adequate and full consideration, section 2036(a) is inapplicable to the transfer and does not operate to include the value ofthe property in the value of decedent's gross estate. "[I]fsection 2036(a) does not apply to decedent's tran

Section 2036(a) Conclusion We have found that decedent's transfer ofproperty to the PFLLC was a bona fide transfer and that decedent received full and adequate consideration from the PFLLC as a result ofthe transfer. Because decedent's transfer was bona fide and for adequate and full consideration, section 2036(a) is inapplicable to the transfer and does not operate to include the value ofthe property in the value of decedent's gross estate. "[I]fsection 2036(a) does not apply to decedent's tran

- 21 - [*21] Bona Fide Sale Exception Section 2036(a) does not apply ifthe transfer ofproperty was part ofa bona fide sale in exchange for full and adequate consideration.

Accordingly, the bona fide sale exception of ·section 2036 (a) does not apply to Clyde Sr.'s transfer of property to Turner & Co.

We believe Estate of Mirowski is distinguishable from the instant case.

Further, petitioner contends that section 2036(a) does not apply because Mrs .

These cases both involve the management of an active business, not a portfolio of untraded securities, and therefore are distinguishable from this case .

As stated above, a finding to that effect would preclude the application of - 44 - section 2036; thus, the Empak stock decedent transferred to WCB Holdings would not be included his gross estate under section 2036(a). Moreover, if section 2036(a) does not apply to decedent's transfer, section 2035(a) cannot apply to the gifts he made of WCB Holdings class A governance units to CH Trust, GC Trust, and .QTIP Trust.

2036(a).6 Respondent determined and contends that assets that decedent conveyed to the partnership are includable in his estate under section 2036(a). Petitioner contends that section 2036(a) does not apply because decedent did not retain enjoyment (i.e., economic benefits) of the transferred property and that the transfer was for full and adequate consideration.

After settlement-ofcertain issues, the sole issue remaining for decision is whetherthe value ofreal property transferred by Joanne Stone (decedent) to a family limited partnership should be included in the value ofher gross estate pursuant to section 2036(a).' We hold thatthe value ofthe propertytransferred should not be included.

MEMORANDUMFINDINGS OF FACT AND OPINION FOLEY, Judge: The issue for decision is whetherthe value ofassets is includable in decedent s gross estate pursuant to section 2036(a).1 FINDINGS OF FACT In 1946 Beatrice Kelly (decedent) and her husband opened a quarry in Rabun Gap, Georgia.

The estate also contends that the Court did not consider, and should decide, its alternative position--that even if section 2036 applies, the estate has no estate tax deficiency because it s entitled to an increased marital deduction equal to the increased value ofthe gross estate.2 Respondent has filed an objection to the estate's motion.

The issues for decision are whether: (1) The value of a personal residence transferred by Sylvia Riese SERVEDMar152011 - 2 - (decedent) to a qualified personal residence trust (QPRT) that terminated 6 months before decedent's death is included in the value of decedent's gross estate pursuant to section 2036;1 (2) investment management fees of $125,000 paid by the estate are deductible administrative expenses pursuant to section 2053; (3) accrued rent of $46,298 is deductible as a debt of decede

We hold, therefore, that the Hurfords were not entitled to any discounts because of the FLPs when they calculated the amount of the monthly annuity payments, and so no discounts apply when determining the amount now includable in the estate." C.

Applying the economic substance doctrine in this case on the basis of decedent's continuing control would be equivalent to applying section 2036(a) and including the transferred assets in decedent's estate.

To prevent the avoidance of section 2036, which includes in a decedent’s estate property transferred subject to a retained life 23 estate, the courts may treat each settlor as the grantor of the other’s trust.

2036. TRANSFERS WITH RETAINED LIFE ESTATE. (a) General Rule.--The value ofthe gross estate shall include the value ofall propertyto the extent ofany interest therein ofwhich the decedent has at any time made a transfer (except in case ofa bona fide sale for an adequate and full consideration in money or money's worth), * * * under which he has retained 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-- (

2036. TRANSFERS WITH RETAINED LIFE ESTATE. (a) General Rule.--The value ofthe gross estate shall include the value ofall propertyto the extent ofany interest therein ofwhich the decedent has at any time made a transfer (except in case ofa bona fide sale for an adequate and full consideration in money or money's worth), * * * under which he has retained 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-- (

We have held that the bona fide sale exception in section 2036(a) is satisfied in the context ofa family limited partnership where the record establishes the existence ofa legitimate and significant nontax reason for creating the family limited partnership, and the transferors received partnership interests proportionate to the value ofthe property transferred. See, e.g., Estate ofStone v. Commissioner, * * * [T.C. Memo. 2003-309]. The objective evidence must indicate that the nontax reason was

Thus, after the transfer of the three 16 ercent inter- ests, decedent held the right, in conjunc :ion with her daughters, to designate the person or per 3ons who shall possess or enjoy the proceeds of the tran 3ferred prop- erty, within the meaning of section 2036( ) (2), with the result that the assets transferred to MFV are includible in the gross estate .

Section 2036 A decedent’s gross estate includes the value of property interests transferred by the decedent during his or her lifetime if the decedent retained for life the possession or enjoyment of, or the right to the income from, the transferred property. Sec. 2036(a)(1). Petitioner maintains that section 2036(a) is inapplicable because deceden

Erickson transferred to the Partnership shortly before she died are included in her gross estate under section 2036 .3 Respondent 3Respon lent argues in the alternative that the gross estate includes th property transferred to the Partnership pursuant to sec .

Section 2036 A decedent’s gross estate includes the value of property interests transferred by the decedent during his or her lifetime if the decedent retained for life the possession or enjoyment of, or the right to the income from, the transferred property. Sec. 2036(a)(1). Petitioner maintains that section 2036(a) is inapplicable because deceden

ined 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–- (1) the possession or enjoyment of, or the right to income from, the property * * * Congress enacted section 2036 intending to bring within a decedent’s gross estate “transfers that are essentially testamentary–-i.e., transfers which leave the transferor a significant interest in or control over the property transferred during his lifetime.” United

ined 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-- (1) the possession or enjoyment of, or the right to income from, the property * * * Congress enacted section 2036 intending to bring within a decedent’s gross estate “‘transfers that are essentially testamentary–-i.e., transfers which leave the transferor a significant interest in or control over the property transferred during his lifetime.’” Estat

Section 2036 The purpose of section 2036 is to include in a deceased taxpayer’s gross estate the value of inter vivos transfers that were testamentary in nature. United States v. Estate of Grace, - 14 - 395 U.S. 316 (1969). Section 2036(a)5 generally provides that if a decedent makes an inter vivos transfer of property, other than a bona fide sale

Section 2036 applies if a decedent retains the right to income from the property or if there was an implied agreement to that effect. Estate of Reichardt v. Commissioner, supra at 153; Estate of Hillgren v. Commissioner, T.C. Memo. 2004-46; see Estate of Thompson v. Commissioner, supra at 375. Decedent’s use - 22 - of partnership income to replace

Sections 2035(a) and 2036(a) The purpose of section 2036 is to include in a deceased taxpayer’s gross estate inter vivos transfers that were testamentary in nature.

Section 2036 We must decide whether the existence of LKHP will be recognized for estate tax purposes. Respondent argues that the value of the properties that were transferred to LKHP is includable in decedent’s gross estate under section 2036(a). The estate argues, however, that LKHP was a valid partnership, formed under California law and created

termined in the notice that the decedent retained until the time of his death the possession or enjoyment * * * [of], or right to the income from, the assets he contributed to the * * * [Five Partnerships] within the meaning of Internal Revenue Code Section 2036. * * * On November 13, 2001, respondent issued a notice to Ms. Stone’s estate. In that notice, respondent determined to in- crease (1) by $688,385 the value attributable to Ms. Stone’s respective partnership interests in ES3LP, ES4LP, CR

termined in the notice that the decedent retained until the time of his death the possession or enjoyment * * * [of], or right to the income from, the assets he contributed to the * * * [Five Partnerships] within the meaning of Internal Revenue Code Section 2036. * * * On November 13, 2001, respondent issued a notice to Ms. Stone’s estate. In that notice, respondent determined to in- crease (1) by $688,385 the value attributable to Ms. Stone’s respective partnership interests in ES3LP, ES4LP, CR

checks written for gifts and charitable contributions) all relate to periods prior to those at issue and do not bear in any meaningful way on matters considered herein, we sustain respondent’s objections. - 22 - III. Inclusion in the Gross Estate--Section 2036 A. General Rules As a general rule, section 2501 imposes a tax for each calendar year “on the transfer of property by gift” by any taxpayer, and section 2511(a) further clarifies that such tax “shall apply whether the transfer is in trust

Burden of Proof As a preliminary matter, decedent’s estate maintains that the issues of (1) whether the partnerships are to be recognized for estate tax purposes, and (2) the applicability of section 2036 are new matters which were not raised in the notice of deficiency.

Among these specific sections is section 2036, which reads in pertinent part as follows: SEC.

Section 2036 applies not only if a transferor retains possession or enjoyment of property, but also if a transferor retains the right to income from the property. See sec. 2036(a)(1). We believe that decedent and his children had an implied agreement that decedent could retain for his lifetime the right to the income from all of the real property t

Section 2036 -- Background . . . . . . . . . . . . . . . 35 C. Whether Paul Brown Received Adequate and Full Consideration for the Shares of Bengals Stock . . . . . 37 D. Whether Decedent Made an Inter Vivos Transfer of Sawyer's 212 Shares of Bengals Stock . . . . . . . . . 38 E. Whether Paul Brown Retained an Interest in the 329 Shares of Bengals

As more fully discussed below, section 2043 - 20 - reduces the amount that is includable under section 2036 by the value of any consideration received by the decedent.

Black contributed to the Black Interests Limited Partnership (Black LP) is includable in his gross estate pursuant to section 20362 (the section 2036 issue) ; (2) if we decide that the fair market value of the stock Mr .

Black contributed to the Black Interests Limited Partnership (Black LP) is includable in his gross estate pursuant to section 20362 (the section 2036 issue) ; (2) if we decide that the fair market value of the stock Mr .

) gave an aggregate 24-percent interest in her homestead property to her children. In the years following the transfer, she continued to reside on the property. R determined that the 24- percent interest is includable in D’s gross estate pursuant to sec. 2036, I.R.C. Held: D’s continued use of the homestead property as her residence following the transfer of minority interests in the property to her children was not a retained life estate in the property interests conveyed to her children. Conse

In general, section 2036 includes property in a decedent's gross estate if: (1) the decedent made an inter vivos transfer ofproperty; (2) the decedent's transferwas not a bona fide sale for adequate and full consideration; and (3) the decedent kept an interest or right in the transferred property ofthe kind listed in section 2036(a) (i.e., possession of, or th

was subject to section 2036 and that the values of those transferred assets are included in the value of his gross estate.

- property, whether the value of that property should be included in decedent ' s estate pursuant to section 2036,1 and whether the decedent ' s estate is entitled to deductions relating to property taxes and claims against the estate .

Among these specific sections is section 2036, which reads in pertinent part as follows: SEC.

Section 2036 The purpose of section 2036 is to include in a deceased taxpayer’s gross estate the value of inter vivos transfers that were testamentary in nature. United States v. Estate of Grace, 395 U.S. 316 (1969). Section 2036(a)5 generally provides that if 5SEC. 2036. TRANSFERS WITH RETAINED LIFE ESTATE. (a) General Rule.–-The value of the gros

She retained a life estate so Section 2036 applied.

o. 1996-25. Both parties’ experts used a valuation date of October 31, 1951, to determine the values of the interests exchanged between Joseph and Cyril. On brief, respondent argued that the amount of 6The amount includable in the gross estate under sec. 2036 is reduced by the value of any consideration received by the decedent at the time of the transfer. See sec. 2043(a); Estate of Magnin v. Commissioner, 184 F.3d 1079, 1081-1082 (9th Cir. 1999); United States v. Past, 347 F.2d 7, 14 (9th Cir.

ual control exercised by Mr. Gulig, combined with the 99-percent limited partnership interest in SFLP and the 47-percent interest in Stranco, suggest the possibility of including the property transferred to the partnership in decedent’s estate under section 2036. See, e.g., Estate of Reichardt v. Commissioner, 114 T.C. 144 (2000). Section 2036 is not an issue in this case, however, because respondent asserted it only in a proposed amendment to answer tendered shortly before trial. Respondent’s m

The general rule now does not apply to such decedents unless within the 3-year period the decedent made a transfer of an interest in property that is includable in the estate under section 2036, 2037, 2038, or 2042, or would be included under those sections had the interest been retained by decedent.

Transfers with retained life estate. (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 made a transfer (except in the case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or oth

Therefore, the donee spouse is treated as making a gift under section 2519 of the entire trust less the qualifying income interest, and is treated for purposes of section 2036 as having transferred the entire trust corpus, including 24 Indeed, at the February 21, 2024, hearing, the Estate maintained that the case could be decided simply by applying Treasury Regulation § 25.2519-1(e).

19822-13 (related case).4 This decision resulted in two adjustments relevant to this case: (1) the value of the estate’s interest in RMV was adjusted from $30,725,000 to $40,614,822 under section 2036 and (2) the estate was limited to a deduction of 6% on the note (instead of the 9% claimed).

The issues for our consideration are: (1) whether section 2036 or 2038 applies to recapture inter vivos transfers made as part of the split-dollar agreements and (2) if 1Unless otherwise indicated, all statutory references are to the Internal Revenue Code (Code), 26 U.S.C., in effect for the date of the decedent’s death, and all Rule references are to the Tax Court Rules of Practice and Procedure.

We have to decide whetherthe value ofthe farm must be included in Moore's estate under section 2036 despite its sale in large part through the FLP.

We have to decide whetherthe value ofthe farm must be included in Moore's estate under section 2036 despite its sale in large part through the FLP.

The IRS further determined that, under section 2036, the full value ofALSF's assets was in- cludible in the gross estate as opposed to the 1% interest the estate had reported.

life expectancy, as determined by IRS actuarial tables. - 29 - [*29] maintained an indirect ownership interest in KIC after Baldwin's admission and, ifso, the value thereof. A retained interest in KIC would be includible in Mrs. Kite's estate under section 2036. To determine the exact nature ofMrs. Kite's interest in KIC after Baldwin's admission, the Court must look to State law ofthe entity, and in these cases, Texas partnership law. See Adams v. United States, 218 F.3d 383, 386 (5th Cir. 2000

life expectancy, as determined by IRS actuarial tables. - 29 - [*29] maintained an indirect ownership interest in KIC after Baldwin's admission and, ifso, the value thereof. A retained interest in KIC would be includible in Mrs. Kite's estate under section 2036. To determine the exact nature ofMrs. Kite's interest in KIC after Baldwin's admission, the Court must look to State law ofthe entity, and in these cases, Texas partnership law. See Adams v. United States, 218 F.3d 383, 386 (5th Cir. 2000

The Commissioner determined that those retained rights caused the values of the shares to be includable in hisi :gross estate under either section 2036 (a)(1) (retentionof the enjoyment of or right to income from the property ) or section 2036 (a)(2) (the right to designate who shall enjoy the propert y or the income therefrom) .

Decedent's Contributions to MFLP Lastly we determine whether .the~cash and securities` decedent !transferred to MFLP in April 2002 and May 2003 must be included 11 inthe,value of decedent's gross estate under section 2036 at :their-fair market value or are entitled to a discount .

The sole question presented is whether the full date of death value of three family limited partnerships is includable in the taxable estate of Ida Abraham (decedent) - 2 - under section 2036.1 Respondent concedes that decedent received $320,000 in connection with the transfer of certain limited partnership interests to her daughters, an amount which constitutes consideration within the meaning of section 2043.

Among these specific sections are section 2036, which includes transfers where the decedent retained the possession of, the enjoyment of, or the right to designate persons who shall possess or enjoy transferred property or income therefrom; section 2038, which includes revocable transfers; and section 2041, which includes property over which the decedent held a general power of app

Among these specific sections are section 2036, which includes transfers where the decedent retained the possession of, the enjoyment of, or the right to designate persons who shall possess or enjoy transferred property or income therefrom; section 2038, which includes revocable transfers; and section 2041, which includes property over which the decedent held a general power of app

(a) .Estate Tax.-- (1) In general.--If any part of the gross estate on which tax has been paid consists of the value of property included in the gross estate by reason of section 2036 (relating to transfers with retained life estate), the decedent's estate shall be entitled to recover from the person receiving the property the amount which bears the same ratio to the total tax under this chapter which has been paid as-- (A) the value of such property, bears to (B) the taxable estate.

- 25 - FOLEY, J., concurring in result: Family limited partnerships are proliferating as an estate planning device, taxpayers are planning amid great uncertainty, and respondent is asserting numerous theories (i.e., economic substance, Chapter 14, section 2036, immediate gift upon formation, etc.) in an attempt to address these transactions.

In reliance upon a revenue ruling that construed section 2036, the Government determined that the entire value of the property, less the actuarial value of Verlena’s life estate, was includable in Edward’s gross estate.

For support, petitioner cites section 2036 of the Internal Revenue Code.