26 U.S.C. § 2036 — Transfers with retained life estate

Page 2589 TITLE 26—INTERNAL REVENUE CODE § 2036 Subsec. (d). Pub. L. 106–554, § 1(a)(7) [title III, § 319(14)(B)], inserted ‘‘and paragraph (1) of subsection (c)’’ after ‘‘Subsection (a)’’. 1997—Pub. L. 105–34 amended section catchline and text generally. Prior to amendment, section consisted of subsecs. (a) to (d) relating to adjustments for gifts made within 3 years of decedent’s death. 1983—Subsec. (b)(2). Pub. L. 97–448, § 104(a)(9), sub- stituted ‘‘section 6019(2)’’ for ‘‘section 6019(a)(2)’’. Subsec. (d)(2). Pub. L. 97–448, § 104(d)(2), inserted ‘‘of this subsection and paragraph (2) of subsection (b)’’ after ‘‘Paragraph (1)’’, and struck out ‘‘2041,’’ after ‘‘2038,’’. Subsec. (d)(3)(C), (D). Pub. L. 97–448, § 104(d)(1)(C), re- designated subpar. (D) as (C). Former subpar. (C), which referred to section 6166 (relating to extension of time for payment of estate tax where estate consists largely of interest in closely held business), was struck out. Subsec. (d)(4). Pub. L. 97–448, § 104(d)(1)(A), added par. (4). 1981—Subsec. (b)(2). Pub. L. 97–34, § 403(b)(3)(B), in- serted ‘‘(other than by reason of section 6019(a)(2))’’ after ‘‘section 6019’’. Subsec. (d). Pub. L. 97–34, § 424(a), added subsec. (d). 1978—Subsec. (b). Pub. L. 95–600 substituted in par. (2) provisions relating to gifts for which donee was not re- quired by section 6019 to file gift tax returns for provi- sions relating to gifts excludable in computing taxable gifts by reason of section 2503(b) and inserted provi- sions following par. (2) relating to inapplicability of par. (2) to transfers respecting life insurance policies. 1976—Pub. L. 94–455 substituted provisions covering adjustments for gifts made within 3 years of decedent’s death for provisions under which transfers by the dece- dent within 3 years of the decedent’s death were deemed to have been made in contemplation of death and included in the value of the gross estate. 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 1997 AMENDMENT Pub. L. 105–34, title XIII, § 1310(c), Aug. 5, 1997, 111 Stat. 1044, provided that: ‘‘The amendments made by this section [amending this section] shall apply to the estates of decedents dying after the date of the enact- ment of this Act [Aug. 5, 1997].’’ EFFECTIVE DATE OF 1983 AMENDMENT Amendment by Pub. L. 97–448 effective, except as oth- erwise provided, as if it had been included in the provi- sion of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Amendment by section 403(b)(3)(B) of Pub. L. 97–34 ap- plicable to estates of decedents dying after Dec. 31, 1981, see section 403(e) of Pub. L. 97–34, set out as a note under section 2056 of this title. Pub. L. 97–34, title IV, § 424(b), Aug. 13, 1981, 95 Stat. 317, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to the estates of decedents dying after December 31, 1981.’’ EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–600, title VII, § 702(f)(2), Nov. 6, 1978, 92 Stat. 2930, provided that: ‘‘The amendment made by paragraph (1) [amending this section] shall apply to the estates of decedents dying after December 31, 1976, ex- cept that it shall not apply to transfers made before January 1, 1977.’’ EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94–455 applicable to estates of decedents dying after Dec. 31, 1976, but not to transfers made before Jan. 1, 1977, see section 2001(d)(1) of Pub. L. 94–455, set out as a note under section 2001 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment 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. TRANSFERS MADE BY DECEDENT DURING 1977; ELECTION AVAILABLE TO EXECUTOR ON OR BEFORE DUE DATE FOR FILING ESTATE TAX RETURN Pub. L. 96–222, title I, § 107(a)(2)(F), Apr. 1, 1980, 94 Stat. 223, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(i) If the executor elects the benefits of this sub- paragraph with respect to any estate, section 2035(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to adjustments for gifts made within 3 years of decedent’s death) shall be applied with re- spect to transfers made by the decedent during 1977 as if paragraph (2) of such section 2035(b) read as fol- lows: ‘‘ ‘(2) to any gift to a donee made during 1977 to the extent of the amount of such gift which was excludable in computing taxable gifts by reason of section 2503(b) (relating to $3,000 annual exclusion for purposes of the gift tax) determined without regard to section 2513(a).’ ‘‘(ii) The election under clause (i) with respect to any estate shall be made on or before the later of— ‘‘(I) the due date for filing the estate tax return, or ‘‘(II) the day which is 120 days after the date of the enactment of this Act [Apr. 1, 1980].’’ § 2036. 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 inter- est 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 other- wise, under which he has retained for his life or for any period not ascertainable without ref- erence 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 the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the in- come therefrom. (b) Voting rights (1) In general For purposes of subsection (a)(1), the reten- tion of the right to vote (directly or indi- rectly) shares of stock of a controlled corpora- tion shall be considered to be a retention of the enjoyment of transferred property. (2) Controlled corporation For purposes of paragraph (1), a corporation shall be treated as a controlled corporation if, at any time after the transfer of the property and during the 3-year period ending on the date of the decedent’s death, the decedent owned (with the application of section 318), or had the right (either alone or in conjunction with any person) to vote, stock possessing at least 20 percent of the total combined voting power of all classes of stock. (3) Coordination with section 2035 For purposes of applying section 2035 with respect to paragraph (1), the relinquishment or Page 2590 TITLE 26—INTERNAL REVENUE CODE § 2036 cessation of voting rights shall be treated as a transfer of property made by the decedent. (c) Limitation on application of general rule This section shall not apply to a transfer made before March 4, 1931; nor to a transfer made after March 3, 1931, and before June 7, 1932, unless the property transferred would have been includible in the decedent’s gross estate by reason of the amendatory language of the joint resolution of March 3, 1931 (46 Stat. 1516). (Aug. 16, 1954, ch. 736, 68A Stat. 382; Pub. L. 87–834, § 18(a)(2)(D), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XX, § 2009(a), Oct. 4, 1976, 90 Stat. 1893; Pub. L. 95–600, title VII, § 702(i)(1), (2), Nov. 6, 1978, 92 Stat. 2931; Pub. L. 100–203, title X, § 10402(a), Dec. 22, 1987, 101 Stat. 1330–431; Pub. L. 100–647, title III, § 3031(a)(1), (b)–(e), (g), Nov. 10, 1988, 102 Stat. 3634–3638; Pub. L. 101–508, title XI, § 11601(a), Nov. 5, 1990, 104 Stat. 1388–490.) Editorial Notes AMENDMENTS 1990—Subsecs. (c), (d). Pub. L. 101–508 redesignated subsec. (d) as (c) and struck out former subsec. (c) which enunciated a rule that retention of retained in- terest would be considered to be a retention of enjoy- ment of transferred property if a person held a substan- tial interest in an enterprise, and such person in effect transferred after Dec. 17, 1987, property having a dis- proportionately large share of the potential apprecia- tion in such person’s interest in the enterprise while re- taining an interest in the income of, or rights in, the enterprise. 1988—Subsec. (c)(1)(B). Pub. L. 100–647, § 3031(e), sub- stituted ‘‘an interest’’ for ‘‘a disproportionately large share’’ after ‘‘whole retaining’’. Subsec. (c)(2). Pub. L. 100–647, § 3031(g)(1), substituted ‘‘consideration furnished by’’ for ‘‘sales to’’ in heading, and amended text generally. Prior to amendment, text read as follows: ‘‘The exception contained in subsection (a) for a bona fide sale shall not apply to a transfer de- scribed in paragraph (1) if such transfer is to a member of the transferor’s family.’’ Subsec. (c)(3)(C). Pub. L. 100–647, § 3031(d), substituted ‘‘Except as provided in regulations, an’’ for ‘‘An’’. Subsec. (c)(4). Pub. L. 100–647, § 3031(a)(1), amended par. (4) generally, substituting provisions relating to treatment of certain transfers for provisions relating to coordination with section 2035. Subsec. (c)(5). Pub. L. 100–647, § 3031(g)(2), amended par. (5) generally, substituting provisions relating to the making of appropriate adjustments in amounts in- cluded in gross estate for provisions relating to coordi- nation with section 2043. Subsec. (c)(6). Pub. L. 100–647, § 3031(b), added par. (6). Subsec. (c)(7), (8). Pub. L. 100–647, § 3031(b)[(c)], added pars. (7) and (8). 1987—Subsecs. (c), (d). Pub. L. 100–203 added subsec. (c) and redesignated former subsec. (c) as (d). 1978—Subsec. (a). Pub. L. 95–600, § 702(i)(2), struck out provision following par. (2) relating to the retention of voting rights in retained stock. Subsecs. (b), (c). Pub. L. 95–600, § 702(i)(1), added sub- sec. (b) and redesignated former subsec. (b) as (c). 1976—Subsec. (a). Pub. L. 94–455 provided that, for purposes of par. (1), the retention of voting rights in re- tained stock be considered to be a retention of the en- joyment of that stock. 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 1990 AMENDMENT Pub. L. 101–508, title XI, § 11601(c), Nov. 5, 1990, 104 Stat. 1388–491, provided that: ‘‘The amendments made by this section [amending this section and sections 2207B and 2501 of this title] shall apply in the case of property transferred after December 17, 1987.’’ EFFECTIVE DATE OF 1988 AMENDMENT Pub. L. 100–647, title III, § 3031(h), Nov. 10, 1988, 102 Stat. 3639, provided that: ‘‘(1) IN GENERAL.—Except as provided in this sub- section, any amendment made by this section [enacting section 2207B of this title and amending this section and section 2501 of this title] shall take effect as if in- cluded in the provisions of the Revenue Act of 1987 [Pub. L. 100–203, title X] to which such amendment re- lates. ‘‘(2) SUBSECTION (a).—The amendments made by sub- section (a) [amending this section and section 2501 of this title] shall apply in cases where the transfer re- ferred to in section 2036(c)(1)(B) of the 1986 Code is on or after June 21, 1988. ‘‘(3) SUBSECTION (f).—If an amount is included in the gross estate of a decedent under section 2036 of the 1986 Code other than solely by reason of section 2036(c) of the 1986 Code, the amendments made by subsection (f) [enacting section 2207B of this title] shall apply to such amount only with respect to property transferred after the date of the enactment of this Act [Nov. 10, 1988]. ‘‘(4) CORRECTION PERIOD.—If section 2036(c)(1) of the 1986 Code would (but for this paragraph) apply to any interest arising from a transaction entered into during the period beginning after December 17, 1987, and end- ing before January 1, 1990, such section shall not apply to such interest if— ‘‘(A) during such period, such actions are taken as are necessary to have such section 2036(c)(1) not apply to such transaction (and any such interest), or ‘‘(B) the original transferor and his spouse on Janu- ary 1, 1990 (or, if earlier, the date of the original transferor’s death), does not hold any interest in the enterprise involved. ‘‘(5) CLARIFICATION OF EFFECTIVE DATE.—For purposes of section 10402(b) of the Revenue Act of 1987 [Pub. L. 100–203, set out as an Effective Date of 1987 Amendment note below], with respect to property transferred on or before December 17, 1987— ‘‘(A) any failure to exercise a right of conversion, ‘‘(B) any failure to pay dividends, and ‘‘(c) [sic] failures to exercise other rights specified in regulations, shall not be treated as a subsequent transfer.’’ EFFECTIVE DATE OF 1987 AMENDMENT Pub. L. 100–203, title X, § 10402(b), Dec. 22, 1987, 101 Stat. 1330–432, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply with respect to estates of decedents dying after December 31, 1987, but only in the case of property transferred after December 17, 1987.’’ [For clarification of this note, see section 3031(h)(5) of Pub. L. 100–647, set out as an Effec- tive Date of 1988 Amendment note above.] EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–600, title VII, § 702(i)(3), Nov. 6, 1978, 92 Stat. 2931, provided that: ‘‘The amendments made by this subsection [amending this section] shall apply to transfers made after June 22, 1976.’’ EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title XX, § 2009(e)(1), Oct. 4, 1976, 90 Stat. 1896, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to transfers made after June 22, 1976.’’ EFFECTIVE DATE OF 1962 AMENDMENT Amendment 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. Page 2591 TITLE 26—INTERNAL REVENUE CODE § 2038 § 2037. Transfers taking effect at death (a) General rule The value of the gross estate shall include the value of all property to the extent of any inter- est 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 ade- quate and full consideration in money or mon- ey’s worth), by trust or otherwise, if— (1) possession or enjoyment of the property can, through ownership of such interest, be ob- tained 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 ex- press terms of the instrument of transfer), and the value of such reversionary interest imme- diately before the death of the decedent ex- ceeds 5 percent of the value of such property. (b) Special rules For purposes of this section, the term ‘‘rever- sionary 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 re- turn to him or become subject to a power of dis- position by him. The value of a reversionary in- terest immediately before the death of the dece- dent shall be determined (without regard to the fact of the decedent’s death) by usual methods of valuation, including the use of tables of mor- tality and actuarial principles, under regula- tions prescribed by the Secretary. In deter- mining 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 re- turn to the decedent or his estate. Notwith- standing the foregoing, an interest so trans- ferred shall not be included in the decedent’s gross estate under this section if possession or enjoyment of the property could have been ob- tained 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 de- cedent’s death. (Aug. 16, 1954, ch. 736, 68A Stat. 382; Pub. L. 87–834, § 18(a)(2)(E), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) 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 AMENDMENT Amendment 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. § 2038. Revocable transfers (a) In general The value of the gross estate shall include the value of all property— (1) Transfers after June 22, 1936 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. (2) Transfers on or before June 22, 1936 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 in- cluded in the gross estate under paragraph (1) unless it is includible under this paragraph. (b) Date of existence of power For purposes of this section, the power to alter, amend, revoke, or terminate shall be con- sidered 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 expira- tion 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 con- sidered to have been given, or the power exer- cised, on the date of his death. (Aug. 16, 1954, ch. 736, 68A Stat. 383; Pub. L. 86–141, § 1, Aug. 7, 1959, 73 Stat. 288; Pub. L. 87–834, § 18(a)(2)(F), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XIX, § 1902(a)(3), title XX, § 2001(c)(1)(K), Oct. 4, 1976, 90 Stat. 1804, 1852.)