Transfers with Retained Reversionary Interests

Question 1

Archetypal example of 2037

Answer 1

D transfers lifetime benefit of property to W. Upon W’s death, trust property is distributed to D if living, otherwise to D’s descendants.
Amount included in estate is total value of property minus value of life estate.

Question 2

2037 basic rule

Answer 2

2037 includes in gross estate property transferrred by decedent if (1) a 3p’s interest can be possessed or enjoyed only be surviving the decedent, and (2) the decedent retained a reversionary interest in the transferred property, and (3) the reversionary interest is at least 5% of the value of the total property.

Question 3

Survivorship Requirement

Answer 3

Will not apply simply if it is possible that the 3P could receive the property while the decedent is still living.

Beware regs that say if chance of 3P receiving property other than by decedent’s death is “unreal” and does not in fact occur, 2037 may apply.

Question 4

Types of retained reversionary interests

Answer 4

Conventional Reversion: Simply the possible result of property returning to the decedent or the decedent’s estate. Not beholden to nuances of state law.

Powers of Disposition: Not particularly important because usually implicates 2036 and 2038.

Does NOT include state default laws.

Question 5

Interaction between 2037 and 2035?

Answer 5

Any reversionary interest relinquished within three years of death will be treated as active under 2035.

Question 6

How can 2033 potentially apply?

Answer 6

If a reversion exists but fails to implicate 2037, 2033 may still apply. The reversion would have to not be extinguished by death but remain in decedent’s estate. Value included will be value of reversion and not of entire transferred property.