Chapter 11; Subchapter A; Part III - Gross Estate

Question 1

Part III Gross Estate

Answer 1

2031-2046

Question 2

Definition of Gross Estate

Answer 2

2031
Value of Gross Estate includes the value at time of death of all real, personal, tangible, and intangible property included in this part (serialized in 2033-2044)

Question 3

Alternate Valuation

Answer 3

2032
(a) Executor may elect to value property as of the date six months after death. (Disposition date of any property sold during that time).
(c) Election may only be made if it will decrease estate size and resulting tax. (Preventing basis step-up gamemanship).

Question 4

Valuation of Certain Farm, Etc.; Real Estate

Answer 4

2032A
Property meeting certain qualifications can be valued at actual use rather than highest and best use.

Question 5

Property in Which the Decedent Had an Interest

Answer 5

2033
Gross Estate includes all property to the extent of the interest the decedent held at the time of death.

Carries bulk of estate inclusions. Generally included if decedent’s interest in the property survived the decedent’s death and the decedent must have possessed the right to determine manner in which interest would be transmitted.

Question 6

2033 Inclusion: Outstanding Checks

Answer 6

Outstanding checks to charities have been held to be excludable from balance of accounts in gross estate.
Outstanding gratuitous checks to individual donees held by TC to be included.
Effect: No deathbed annual exclusion checks to relatives unless they clear.

Question 7

2033 Inclusion: Promissory Notes

Answer 7

Promissory Notes in favor of decedent generally included in gross estate under 2033. Provision of will forgiving note causes note to still be included in estate with forgiveness treated as bequest.

Note can be excluded from estate if cancellation is included in the underlying contract (SCIN). Obligor must pay premium for cancellation feature and intra-family SCINs will be scrutinized closely.

Question 8

2033 Inclusion: Accrued Income Payments

Answer 8

Accrued Salary and Investment Income: Accrued interest from investment property included in gross estate. Also accrued wages entitled to be decedent included in gross estate. Basically, any accounts receivable even if decedent is cash basis taxpayer.

Deferred Compensation: Mixed bag but tentative principle is that 2033 will not apply to amounts decedent was not in some manner capable of receiving during lifetime and will apply if they do have some ability to receive.

Income in Respect of Decedent (IRD): Think it is included but there is some sort of deduction available under 691(c).

Question 9

2033 Inclusion/Exclusion: Property Interests That Arise Upon Death

Answer 9

Generally interests that are terminated at death and thus not transmissible or created only upon death and not held by decedent in life are not included in gross estate.

Question 10

2033 Inclusion/Exclusion: Powers of Appointment

Answer 10

Combination of lifetime interest in property coupled with the legal ability to direct manner in which property will be transmitted at death (GPOA) does NOT automatically trigger inclusion by 2033.

Question 11

2033 Inclusion/Exclusion: Expectancies and Future Interests

Answer 11

Mere expectancy does not rise to the level of a property interest.

Future Interest constitutes includable present property interest, even though possession is postponed.

Property passes at T’s death in trust to A for life, remainder to B. B’s vested remainder included in gross estate even if dead before A. Same result even if trustee has full discretion to distribute all trust principal to A for any reason.
Property passes at T’s death in trust to A for life, remainder to B if B is still living, if not, to B’s issue. B’s remainder with survivorship condition not includable if dead before A.
Property passes at T’s death in trust to A for life, remainder to C if then living, if not, to B. B’s contingent remainder includable in estate if dead before A and C but contingency considered in valuation.

If S establishes revocable trust for their benefit with remainder to B, B’s vested remainder subject to divestment is includable in estate under 2033 but with valuation considerations.

Question 12

Family-Owned Business Exclusion

Answer 12

2033A

Question 13

Dower or Curtesy Rights

Answer 13

2034
Gross estate includes value of all property to the extent of any interest held by the surviving spouse as dower or curtesy, or by virtue of statute creating an interest in lieu of dower or curtesy (Elective Share).

Question 14

Adjustments for Certain Gifts Made Within 3 Years of Death

Answer 14

2035
.

Question 15

Transfers With Retained Life Estate

Answer 15

2036
(a) Gross Estate includes value of transferred property if transferor has retained possession, right to enjoyment or income from property; or the right to designate who may enjoy the property. (Exception for bona fide sale for full and adequate consideration)

(b) Decedent treated as having retained enjoyment of transferred stock if (1) decedent retained right to vote transferred shares, and (2) corp whose stock was transferred is a controlled corporation.
Controlled Corporation if decedent had at any point 20% voting power (apply 318 and can be in conjunction) after transfer)

Question 16

Transfers Taking Effect at Death

Answer 16

2037
Gross estate includes value of property transferred by decedent in trust if: Possession or enjoyment can only be gained by surviving the decedent and (2) the decedent has retained a reversionary interests that (3) exceeds 5% of the total value of the property.

Question 17

Revocable Transfers

Answer 17

2038

Question 18

Annuities

Answer 18

2039

Question 19

Joint Interests

Answer 19

2040
Joint Property/Account Purchased: Entire value of property is included in estate reduced by whatever portion of property was paid for by survivor.

Joint Property/Account Received by Gift/Bequest: Whatever decedent’s fractional interest is included in estate.

(b) Only half the value of joint property is included in estate if survivor is spouse.

Question 20

Power of Appointment

Answer 20

2041
(a)(2) Gross estate includes property to the extent the decedent has a general power of appointment over it.

(b) General power of appointment defined as one exercisable in favor of decedent, creditors, estate, or estate creditors.
(1)(A) Exception if GPOA related to HEMS ascertainable standard.
(1)(C)(i) Exception if GPOA can only be exercised in conjunction with the creator of the power.
(1)(C)(ii) Exception if GPOA can only be exercised in conjunction with individual with adverse interest.
(2) Lapse of GPOA is generally considered a release. Only applies to the extent the property that could have been exercised exceeds the greater of $5,000 or 5% of assets.

Question 21

Proceeds of Life Insurance

Answer 21

2042
Life insurance proceeds included in gross estate when
(1) Proceeds are receivable by the decedent’s executor,
(2) When the proceeds are receivable by other beneficiaries if the decedent possessed an incident of ownership over the policy.

Inclusion (1) still occurs even if insurance is paid to non-estate beneficiary if that beneficiary is obligated to pay decedent’s debts or administrative expenses of the estate.

Common incidents of ownership are right to economic benefits of policy, power to assign policy or revoke assignment, and the power to pledge policy as collateral or to borrow from the insurer against the policy.

Question 22

Transfers for Insufficient Consideration

Answer 22

2043
(a) If a transaction occurs to which 2035-2038 applies for consideration but that consideration is not full and adequate, the difference is included under those provisions.

(b) Relinquishment of right to dower, curtesy, or elective share is not treated as adequate consideration. (Can’t use contract to get around 2034).
Post-death transfers made pursuant to an agreement relinquishing marital rights, and divorce occurs within 2 years of such agreement [2516(1)], are considered made for adequate consideration and may be deducted from gross estate.

Question 23

Certain Property for Which Marital Deduction was Previously Allowed

Answer 23

2044

Question 24

Prior Interests

Answer 24

2045

Question 25

Disclaimers

Answer 25

2046