§2519 — Dispositions of certain life estates
19 citing cases
Statute Text — 26 U.S.C. §2519
For purposes of this chapter and chapter 11, any disposition of all or part of a qualifying income interest for life in any property to which this section applies shall be treated as a transfer of all interests in such property other than the qualifying income interest.
This section applies to any property if a deduction was allowed with respect to the transfer of such property to the donor—
under section 2056 by reason of subsection (b)(7) thereof, or
under section 2523 by reason of subsection (f) thereof.
For right of recovery for gift tax in the case of property treated as transferred under this section, see section 2207A(b).
Treasury Regulations
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Treas. Reg. §25.2519-1Dispositions of certain life estates
(a) In general. If a donee spouse makes a disposition of all or part of a qualifying income interest for life in any property for which a deduction was allowed under section 2056(b)(7) or section 2523(f) for the transfer creating the qualifying income interest, the donee spouse is treated for purposes of chapters 11 and 12 of subtitle B of the Internal Revenue Code as transferring all interests in property other than the qualifying income interest. For example, if the donee spouse makes a disposition of part of a qualifying income interest for life in trust corpus, the spouse is treated under section 2519 as making a transfer subject to chapters 11 and 12 of the entire trust other than the qualifying income interest for life. 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 that portion of the trust corpus from which the retained income interest is payable. A transfer of all or a portion of the income interest of the spouse is a transfer by the spouse under section 2511. See also section 2702 for special rules applicable in valuing the gift made by the spouse under section 2519.
(b) Presumption. Unless the donee spouse establishes to the contrary, section 2519 applies to the entire trust at the time of the disposition. If a deduction is taken on either the estate or gift tax return with respect to the transfer which created the qualifying income interest, it is presumed that the deduction was allowed for purposes of section 2519. To avoid the application of section 2519 upon a transfer of all or part of the donee spouse's income interest, the donee spouse must establish that a deduction was not taken for the transfer of property which created the qualifying income interest. For example, to establish that a deduction was not taken, the donee spouse may produce a copy of the estate or gift tax return filed with respect to the transfer creating the qualifying income interest for life establishing that no deduction was taken under section 2056(b)(7) or section 2523(f). In addition, the donee spouse may establish that no return was filed on the original transfer by the donor spouse because the value of the first spouse's gross estate was below the threshold requirement for filing under section 6018. Similarly, the donee spouse could establish that the transfer creating the qualifying income interest for life was made before the effective date of section 2056(b)(7) or section 2523(f), whichever is applicable.
(c) Amount treated as a transfer—(1) In general. The amount treated as a transfer under this section upon a disposition of all or part of a qualifying income interest for life in qualified terminable interest property is equal to the fair market value of the entire property subject to the qualifying income interest, determined on the date of the disposition (including any accumulated income and not reduced by any amount excluded from total gifts under section 2503(b) with respect to the transfer creating the interest), less the value of the qualifying income interest in the property on the date of the disposition. The gift tax consequences of the disposition of the qualifying income interest are determined separately under § 25.2511-2. See paragraph (c)(4) of this section for the effect of gift tax that the donee spouse is entitled to recover under section 2207A.
(2) Disposition of interest in property with respect to which a partial election was made. If, in connection with the transfer of property that created the spouse's qualifying income interest for life, a deduction was allowed under section 2056(b)(7) or section 2523(f) for less than the entire interest in the property (i.e., for a fractional or percentage share of the entire interest in the transferred property) the amount treated as a transfer by the donee spouse under this section is equal to the fair market value of the entire property subject to the qualifying income interest on the date of the disposition, less the value of the qualifying income interest for life, multiplied by the fractional or percentage share of the interest for which the deduction was taken.
(3) Reduction for distributions charged to nonelective portion of trust. The amount determined under paragraph (c)(2) of this section (if applicable) is appropriately reduced if—
(i) The donee spouse's interest is in a trust and distributions of principal have been made to the donee spouse;
(ii) The trust provides that distributions of principal are made first from the qualified terminable interest share of the trust; and
(iii) The donee spouse establishes the reduction in that share based on the fair market value of the trust assets at the time of each distribution.
(4) Effect of gift tax entitled to be recovered under section 2207A on the amount of the transfer. The amount treated as a transfer under paragraph (c)(1) of this section is further reduced by the amount the donee spouse is entitled to recover under section 2207A(b) (relating to the right to recover gift tax attributable to the remainder interest). If the donee spouse is entitled to recover gift tax under section 2207A(b), the amount of gift tax recoverable and the value of the remainder interest treated as transferred under section 2519 are determined by using the same interrelated computation applicable for other transfers in which the transferee assumes the gift tax liability. The gift tax consequences of failing to exercise the right of recovery are determined separately under § 25.2207A-1(b).
(5) Interest in previously severed trust. If the donee spouse's interest is in a trust consisting of only qualified terminable interest property, and the trust was previously severed (in compliance with § 20.2056(b)-7(b)(2)(ii) of this chapter or § 25.2523(f)-l(b)(3)(ii) from a trust that, after the severance, held only property that was not qualified terminable interest property, only the value of the property in the severed portion of the trust at the time of the disposition is treated as transferred under this section.
(d) Identification of property transferred. If only part of the property in which a donee spouse has a qualifying income interest for life is qualified terminable interest property, the donee spouse is, in the case of a disposition of all or part of the income interest within the meaning of section 2519, deemed to have transferred a pro rata portion of the entire qualified terminable interest property for purposes of this section.
(e) Exercise of power of appointment. The exercise by any person of a power to appoint qualified terminable interest property to the donee spouse is not treated as a disposition under section 2519, even though the donee spouse subsequently disposes of the appointed property.
(f) Conversion of qualified terminable interest property. The conversion of qualified terminable interest property into other property in which the donee spouse has a qualifying income interest for life is not, for purposes of this section, treated as a disposition of the qualifying income interest. Thus, the sale and reinvestment of assets of a trust holding qualified terminable interest property is not a disposition of the qualifying income interest, provided that the donee spouse continues to have a qualifying income interest for life in the trust after the sale and reinvestment. Similarly, the sale of real property in which the spouse possesses a legal life estate and thus meets the requirements of qualified terminable interest property, followed by the transfer of the proceeds into a trust which also meets the requirements of qualified terminable interest property, or by the reinvestment of the proceeds in income producing property in which the donee spouse has a qualifying income interest for life, is not considered a disposition of the qualifying income interest. On the other hand, the sale of qualified terminable interest property, followed by the payment to the donee spouse of a portion of the proceeds equal to the value of the donee spouse's income interest, is considered a disposition of the qualifying income interest.
(g) Examples. The following examples illustrate the application of paragraphs (a) through (f) of this section. Except as provided otherwise in the examples, assume that the decedent, D, was survived by spouse, S, that in each example the section 2503(b) exclusion has already been fully utilized for each year with respect to the donee in question, that section 2503(e) is not applicable to the amount deemed transferred, and that the gift taxes on the amount treated as transferred under paragraph (c) are offset by S's unified credit. The examples are as follows:
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Treas. Reg. §25.2519-1(a)In general.
In general. If a donee spouse makes a disposition of all or part of a qualifying income interest for life in any property for which a deduction was allowed under section 2056(b)(7) or section 2523(f) for the transfer creating the qualifying income interest, the donee spouse is treated for purposes of chapters 11 and 12 of subtitle B of the Internal Revenue Code as transferring all interests in property other than the qualifying income interest. For example, if the donee spouse makes a disposition of part of a qualifying income interest for life in trust corpus, the spouse is treated under section 2519 as making a transfer subject to chapters 11 and 12 of the entire trust other than the qualifying income interest for life. 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 that portion of the trust corpus from which the retained income interest is payable. A transfer of all or a portion of the income interest of the spouse is a transfer by the spouse under section 2511. See also section 2702 for special rules applicable in valuing the gift made by the spouse under section 2519.
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Treas. Reg. §25.2519-1(b)Presumption.
Presumption. Unless the donee spouse establishes to the contrary, section 2519 applies to the entire trust at the time of the disposition. If a deduction is taken on either the estate or gift tax return with respect to the transfer which created the qualifying income interest, it is presumed that the deduction was allowed for purposes of section 2519. To avoid the application of section 2519 upon a transfer of all or part of the donee spouse's income interest, the donee spouse must establish that a deduction was not taken for the transfer of property which created the qualifying income interest. For example, to establish that a deduction was not taken, the donee spouse may produce a copy of the estate or gift tax return filed with respect to the transfer creating the qualifying income interest for life establishing that no deduction was taken under section 2056(b)(7) or section 2523(f). In addition, the donee spouse may establish that no return was filed on the original transfer by the donor spouse because the value of the first spouse's gross estate was below the threshold requirement for filing under section 6018. Similarly, the donee spouse could establish that the transfer creating the qualifying income interest for life was made before the effective date of section 2056(b)(7) or section 2523(f), whichever is applicable.
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Treas. Reg. §25.2519-1(c)Amount treated as a transfer—(1) In general.
Amount treated as a transfer—(1) In general. The amount treated as a transfer under this section upon a disposition of all or part of a qualifying income interest for life in qualified terminable interest property is equal to the fair market value of the entire property subject to the qualifying income interest, determined on the date of the disposition (including any accumulated income and not reduced by any amount excluded from total gifts under section 2503(b) with respect to the transfer creating the interest), less the value of the qualifying income interest in the property on the date of the disposition. The gift tax consequences of the disposition of the qualifying income interest are determined separately under § 25.2511-2. See paragraph (c)(4) of this section for the effect of gift tax that the donee spouse is entitled to recover under section 2207A.
(2) Disposition of interest in property with respect to which a partial election was made. If, in connection with the transfer of property that created the spouse's qualifying income interest for life, a deduction was allowed under section 2056(b)(7) or section 2523(f) for less than the entire interest in the property (i.e., for a fractional or percentage share of the entire interest in the transferred property) the amount treated as a transfer by the donee spouse under this section is equal to the fair market value of the entire property subject to the qualifying income interest on the date of the disposition, less the value of the qualifying income interest for life, multiplied by the fractional or percentage share of the interest for which the deduction was taken.
(3) Reduction for distributions charged to nonelective portion of trust. The amount determined under paragraph (c)(2) of this section (if applicable) is appropriately reduced if—
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Treas. Reg. §25.2519-1(d)Identification of property transferred.
Identification of property transferred. If only part of the property in which a donee spouse has a qualifying income interest for life is qualified terminable interest property, the donee spouse is, in the case of a disposition of all or part of the income interest within the meaning of section 2519, deemed to have transferred a pro rata portion of the entire qualified terminable interest property for purposes of this section.
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Treas. Reg. §25.2519-1(e)Exercise of power of appointment.
Exercise of power of appointment. The exercise by any person of a power to appoint qualified terminable interest property to the donee spouse is not treated as a disposition under section 2519, even though the donee spouse subsequently disposes of the appointed property.
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Treas. Reg. §25.2519-1(f)Conversion of qualified terminable interest property.
Conversion of qualified terminable interest property. The conversion of qualified terminable interest property into other property in which the donee spouse has a qualifying income interest for life is not, for purposes of this section, treated as a disposition of the qualifying income interest. Thus, the sale and reinvestment of assets of a trust holding qualified terminable interest property is not a disposition of the qualifying income interest, provided that the donee spouse continues to have a qualifying income interest for life in the trust after the sale and reinvestment. Similarly, the sale of real property in which the spouse possesses a legal life estate and thus meets the requirements of qualified terminable interest property, followed by the transfer of the proceeds into a trust which also meets the requirements of qualified terminable interest property, or by the reinvestment of the proceeds in income producing property in which the donee spouse has a qualifying income interest for life, is not considered a disposition of the qualifying income interest. On the other hand, the sale of qualified terminable interest property, followed by the payment to the donee spouse of a portion of the proceeds equal to the value of the donee spouse's income interest, is considered a disposition of the qualifying income interest.
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Treas. Reg. §25.2519-1(g)Examples.
Examples. The following examples illustrate the application of paragraphs (a) through (f) of this section. Except as provided otherwise in the examples, assume that the decedent, D, was survived by spouse, S, that in each example the section 2503(b) exclusion has already been fully utilized for each year with respect to the donee in question, that section 2503(e) is not applicable to the amount deemed transferred, and that the gift taxes on the amount treated as transferred under paragraph (c) are offset by S's unified credit. The examples are as follows:
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Treas. Reg. §25.2519-1(i)§25.2519-1(i)
The donee spouse's interest is in a trust and distributions of principal have been made to the donee spouse;
(ii) The trust provides that distributions of principal are made first from the qualified terminable interest share of the trust; and
(iii) The donee spouse establishes the reduction in that share based on the fair market value of the trust assets at the time of each distribution.
(4) Effect of gift tax entitled to be recovered under section 2207A on the amount of the transfer. The amount treated as a transfer under paragraph (c)(1) of this section is further reduced by the amount the donee spouse is entitled to recover under section 2207A(b) (relating to the right to recover gift tax attributable to the remainder interest). If the donee spouse is entitled to recover gift tax under section 2207A(b), the amount of gift tax recoverable and the value of the remainder interest treated as transferred under section 2519 are determined by using the same interrelated computation applicable for other transfers in which the transferee assumes the gift tax liability. The gift tax consequences of failing to exercise the right of recovery are determined separately under § 25.2207A-1(b).
(5) Interest in previously severed trust. If the donee spouse's interest is in a trust consisting of only qualified terminable interest property, and the trust was previously severed (in compliance with § 20.2056(b)-7(b)(2)(ii) of this chapter or § 25.2523(f)-l(b)(3)(ii) from a trust that, after the severance, held only property that was not qualified terminable interest property, only the value of the property in the severed portion of the trust at the time of the disposition is treated as transferred under this section.
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Treas. Reg. §25.2519-2Effective date
Except as specifically provided in § 25.2519-1(g), Example 6, the provisions of § 25.2519-1 are effective with respect to gifts made after March 1, 1994. With respect to gifts made on or before such date, the donee spouse of a section 2056(b)(7) or section 2523(f) transfer may rely on any reasonable interpretation of the statutory provisions. For these purposes, the provisions of § 25.2519-1 (as well as project LR-211-76, 1984-1 C.B., page 598, see § 601.601(d)(2)(ii)(b) of this chapter), are considered a reasonable interpretation of the statutory provisions.
19 Citing Cases
Therefore, Treasury Regulation § 25.2519-1(e) does not apply to the transactions in issue.
Kite maintained a qualifying income interest in the converted property, the transfers were not taxable under section 2519.
Kite's children in exchange for the private annuity agreements was a disguised gift subject to gift tax; (2) whether the transfer ofthe QTIP trust assets constituted a disposition ofthe qualifying income interest for life such that the disposition was a taxable gift ofthe remainder interest under section 2519;2 and (3) whether Mrs.
Section 2519 is similar to section 2044 but it addresses lifetime transfers ofQTIP by the surviving spouse." But for these sections, the QTIP remainder, never actually owned by the surviving spouse, would not be included in a transfer tax base by the surviving s ouse or her estate. Sections 2044 and 2519 therefore ensure that taxation ofthe transfe
Section 2519 is similar to section 2044, but it addresses lifetime transfers of QTIP by the surviving spouse. But for these sections, the QTIP remainder, never actually owned by the surviving spouse, would not be included in a transfer tax base by the surviving spouse or her estate. Sections 2044 and 2519 therefore ensure that taxation of the trans
section 2519 deemed transfers lies with the trustees of residual trusts A and B, section 2035 (b) does not apply .
. D's executor elected under section 2056(b)(7) to treat the entire trust property as qualified terminable - 57 - interest property and claimed a marital deduction of $800,000 . S made no disposition of the income interest during S's lifetime under section 2519 . On the date of S's death, the fair market value of the trust property was $740,000 . S's executor did not elect-the alternate valuation date . The amount included in S's gross estate pursuant to section 2044 is $740,000 . Section 20 .20
. D's executor elected under section 2056(b)(7) to treat the entire trust property as qualified terminable - 57 - interest property and claimed a marital deduction of $800,000 . S made no disposition of the income interest during S's lifetime under section 2519 . On the date of S's death, the fair market value of the trust property was $740,000 . S's executor did not elect-the alternate valuation date . The amount included in S's gross estate pursuant to section 2044 is $740,000 . Section 20 .20
Section 2519 Deemed Transfers On December 8, 2000, Mrs. Morgens transferred her income interest in residual trust A as gifts to the remainder beneficiaries in the same proportions as their respective remainder interests, thereby triggering a transfer of the QTIP remainder (2000 deemed transfer) under section 2519. On the date of the gifts, the corp
es to any property if-- (1) a deduction was allowed with respect to the transfer of such property to the decedent-- (A) under section 2056 by reason of subsection (b)(7) thereof, or (B) under section 2523 by reason of subsection (f) thereof, and (2) section 2519 (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of part (continued...) - 9 - surviving spouse the value of property for which no QTIP election was made.
— This section applies to any property if— (1) a deduction was allowed with respect to the transfer of such property to the decedent— (A) under section 2056 by reason of subsection (b)(7) thereof, or (B) under section 2523 by reason of subsection (f) thereof, and (2) section 2519 (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of part or all of such property.