§2038 — Revocable transfers
65 citing cases
Statute Text — 26 U.S.C. §2038
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 case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished during the 3 year period ending on the date of the decedent’s death.
To the extent of any interest therein of which the decedent has at any time 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, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power during the 3 year period ending on the date of the decedent’s death. Except in the case of transfers made after June 22, 1936, no interest of the decedent of which he has made a transfer shall be included in the gross estate under paragraph (1) unless it is includible under this paragraph.
For purposes of this section, the power to alter, amend, revoke, or terminate shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment, revocation, or termination takes 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 has been given or the power has been exercised. In such cases proper adjustment shall be made representing the interests which would have been excluded from the power if the decedent had lived, and for such purpose, if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death.
Treasury Regulations
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Treas. Reg. §20.2038-1Revocable 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.
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Treas. Reg. §20.2038-1(a)In general.
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.
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Treas. Reg. §20.2038-1(b)Date of existence of power.
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.
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Treas. Reg. §20.2038-1(c)Transfers made before June 23, 1936.
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.
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Treas. Reg. §20.2038-1(d)Transfers made before June 2, 1924.
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.
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Treas. Reg. §20.2038-1(e)Powers relinquished in contemplation of death—(1) In general.
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.
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Treas. Reg. §20.2038-1(f)Effect of disability to relinquish power in certain cases.
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.
65 Citing Cases
THE VALUE OF THE ASSETS TRANSFERRED TO THE TRUSTEE DURING THE LIFETIME OF THE DECEDENT HAVE BEEN REPORTED, PURSUANT TO SECTION 2038 OF THE INTERNAL REVENUE CODE, ON SCHEDULE G * * *.
In general, section 2038 includes transferred property in a decedent's gross estate if: (1) the decedent made an inter vivos transfer ofproperty; (2) the - 11 - [*11] decedent's transfer was 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 2038(a)
(b) The New Jersey Litigation The Superior Court ofNew Jersey, unlike the Indiana arbitrator, specifically found that decedent "made valid, irrevocable, gifts in December 2001 and January, 2002 ofall his capital shares ofthe LLC to his nieces." (Emphasis supplied.) Petitioner attempts to sidestep that finding by arguing that that "determination of state property interests does not and cannot foreclose consideration ofthe appropriate federal tax treatment." Petitioner argues that seätions 2035 an
e decedent's death. In Estate ofJalkut v. Commissioner, 96 T.C. 675, 685 (1991), this Court analyzed whether either oftwo sets oftransfers constituted a relinquishment by the decedent ofhis power to alter, amend, revoke, or terminate the trust under section 2038. In 1984 decedent Jalkut, as trustee, made gift transfers to six donees. Id. The Court concluded that the decedent made these transfers pursuant to his power to withdraw income and principal from the trust and therefore the gift transfer
d not constitute adequate consideration because they were structured to ensure that no annuity payment would be made and there was no real expectation ofpayment. "The parties also dispute whether the annuity transaction was bona fide for purposes ofsec. 2038. Sec. 2038 includes in a decedent's gross estate an inter vivos propertytransfer, other than a transfer by a bona fide sale for adequate and full consideration, within the three-yearperiod ending on the date ofthe decedent's death. The annui
Respondent argues in the alternative that section 2038 requires inclusion in the value of the gross estate of the values of the assets transferred into the partnerships .
2008-74, we framed section 2038 as pulling transferred property back into a decedent's estate if: (1) the decedent made an inter vivos transfer of property; (2) the decedent's transfer was not a bona fide sale for adequate and full consideration; and (3) the decedent kept an interest or right in the transferred property of the kind listed in section 2038 (a) which sh
Section 2038(a)(1) In order to resolve the parties' dispute nder section 2038 (a) (1) ,70 we must consider the following factual issue s (1) with respect to Ms .
cedure. - 3 - After concessions,2 the issues presented are:3 2In the estate tax notice of deficiency, respondent determined that the value of a $250,000 St. Francis Hospital, Inc. bond was includable in Sylvia Gore’s (decedent’s) gross estate under sec. 2038, or, alternatively, under either sec. 2031 or 2033. In the stipulation of facts, petitioner concedes that the bond is includable in decedent’s gross estate. In the estate tax notice of deficiency, respondent disallowed a deduction of $19,084
cedure. - 3 - After concessions,2 the issues presented are:3 2In the estate tax notice of deficiency, respondent determined that the value of a $250,000 St. Francis Hospital, Inc. bond was includable in Sylvia Gore’s (decedent’s) gross estate under sec. 2038, or, alternatively, under either sec. 2031 or 2033. In the stipulation of facts, petitioner concedes that the bond is includable in decedent’s gross estate. In the estate tax notice of deficiency, respondent disallowed a deduction of $19,084
Like section 2036, section 2038 provides for inclusion in the gross estate of the value of transferred property.
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 appointment.
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 appointment.
1174 (9th Cir. 1986). - 11 - We do not agree with respondent’s original assertion that, after the transfer of the properties, decedent retained the power to revoke the transfer, thus requiring the inclusion of their value in his gross estate under section 2038. The documents in evidence do not show that decedent retained such a power. Nor does the evidence support a finding that in executing the transfer Michael violated his duties as a trustee, thus rendering the transfer revocable by operatio
- 2 - attorney-in-fact are includable in decedent’s gross estate under section 2038.2 Resolution of the issue requires us to decide whether decedent’s attorney-in-fact was authorized to make the gifts in question by certain powers of attorney granted to her by decedent.
The issues for decision are: (1) Whether certain partnership interests - 2 - includable in the gross estate pursuant to section 2044 should be merged or aggregated with the partnership interests includable in the gross estate pursuant to section 2038, for valuation purposes; and (2) whether the interests in two partnerships passing at death should be valued for Federal estate tax purposes as "assignee" interests or as partnership interests.
In the alternative, respondent contends that voidable transfers are includable in the gross estate pursuant to section 2038, which governs revocable transfers.