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GIFT & ESTATE TAX OUTLINE Computation Estate tax begins at 2001.

. A tax is imposed on the transfer of the taxable estate of the decedent, a US citizen. 2001(a). Estate tax = tentative tax(taxable estate adjusted taxable gifts) todays tax on gifts made since 1976. 2001(b). Rates are at 2001(c). Dont forget the phasedown. Credits are at 2010. Tentative tax * exclusion amount. This year, $2M. Gift tax begins at 2501. A tax is imposed each year on the transfer of property by gift by an individual. 2501(a). Gift tax = tentative tax(total gifts made since 1976) tentative tax(total gifts made in previous years since 1976). 2502(a). Rates are at 2502. Dont forget the phasedown. Credits are at 2505. Tentative tax * $1M. This year, $345,800. Tax inclusive vs. tax exclusive. Estate tax base is tax inclusive. o Assume a flat estate tax rate of 50%, and an estate of $5M. Makes for $2.5M in taxes and $2.5M to the donee. Gift tax base is tax exclusive. o Assume a flat gift tax of 50%, and assets of $5M. Makes for $1.67M in taxes and $3.33M to the donee! There is a bias towards gifts.

State and Federal Law Issues Where state courts rulings on state law have a bearing on the application of Federal tax law (for example, whether a couple is married, or whether a general power of appointment was actually disclaimed), Federal courts will give proper regard to their rulings. No less, but no more. Proper Regard Rulings of the highest state court are binding. Erie. Rulings of lower state courts are merely evidentiary of state law. Factors for weight: o Adversarial proceeding? (If truly adversarial, great weight.) o How adversarial? (Husband vs. wife, probably not so adversarial.) o Consistent with state law? o Savings on the tax bill? o One party preparing the order? Worth noting that its a big deal for a Federal judge to accuse a state judge of fucking up.

Commissioner v. Boschs Estate VERY important case. Sets up proper regard.

The Gift Tax Gift is a Federal (not state) word with very broad scope. 2511. In trust or otherwise, direct or indirect, real or personal, tangible or intangible. For the donor a non-US citizen, gift tax does not apply to property outside US. 3 elements of a Federal gift: Property Transfer Gratuitous The value of a gift is its FMV at the time of transfer. So a bond with a face value of $10K not necessarily worth that much. However, a note subject to modification leads to a gift at time of payment. When is a gift made, though? As soon as there is no power to alter, amend, or revoke. o Power to revoke. Imagine a revocable trust is set up for B. No immediate gift is made, because the settlor could take it all back. Income actually paid to B is a gift at time of payment, even if the trust itself is still revocable. Cant take those payments back. When the settlor no longer can revoke, the original gift is completed and taxed. o Power to alter or amend (usually, to choose beneficiaries). If the settlor has no power to revoke but can choose to sprinkle payments among a class of beneficiaries, there is no gift unless payments are actually made. When the settlor gives up his power to choose beneficiaries, a gift is made to the chosen beneficiaries. Even a power to add to the gift can be a power to alter or amend. Certain strings can be retained, however, and still have a completed gift! o Right to determine when chosen beneficiaries get the money. When is a transfer for consideration a gift? Where property is transferred for less than an adequate and full consideration in money or moneys worth. 2512(b). This is a purely objective test! No donative intent element. So a transfer of property in exchange for something that has no market value like a promise to marry or marital right will be taxed as a gift. Wemyss, Merrill. What about discounts on services? Are the lost revenues taxable? o If given for a hard-nosed business reason, not a gift.

o If given for family favoritism, a gift. Examples of gifts: Zero-interest loans. Dickman, 7872. Services owed as part of a contractual right. Squishy intangible contingent rights. Shaughnessy A co-authors share of the royalties of a book. Examples of not-gifts: A note given, far in excess of ones own assets. Bradford. Corporate-controlled widows benefits. DiMarcos Estate. Services alone. Hogle. Transfers from a property settlement pursuant to a divorce. 2516. o Husband and wife, divorce occurs, property settlement is written, divorce occurs within 1 year before to 2 years after the settlement is written. o Transfers to either spouse to settle marital/property rights, or to provide reasonable allowance for support of minor children from the marriage, are deemed for good consideration and therefore not gifts. Exclusions: Basic exclusion. 2503(b). o $10,000 per person per year, adjusted for inflation. Presently $12K. Beneficial person, not legal. Cant $12K each to three trusts all benefiting one person and take three exclusions. Individual person. Gift to a trust = gift to the beneficiary. Gift to a corporation = gift to the shareholders. o Must be a gift of a present interest to qualify for the exclusion. For tax purposes, this means you presently have both use and enjoyment. Ex. Trust for A. Income to accumulate for 10 years, then income and principal to A. For property law, this is a vested interest that can be attached or sold or whatever. For tax law, though, A does not have use and enjoyment at the time of transfer! Not eligible for the exclusion. Ex. Trust for A. Income for 10 years to A, then principal. A has use and enjoyment of the income interest but not the principal. Income interest is a present interest eligible for the exclusion. Principal interest is a future interest and is not. Present interests: o Cash. o Life insurance policy. o Rights under contract with a third party. o Readily saleable shares of a public company. o Note or bond maturing in X years. (Saleable!) o Gifts into a Crummey trust. o Transfers for the benefit of a minor, 2503(c).

Property and income therefrom may be expended by/on behalf of the donee before he reaches 21 Will pass to the donee at 21, or to his estate (or by general power of appointment) if he dies before then Future interests: o Gift of non-saleable minority shares of a company. Hackl. o Gift of transferable shares of a company, the transfer of which would destroy their value via poison pill (probably). o Any gift with serious strings attached, basically. Hackl. You get an extra exclusion for merging a future interest into a present one. Ex. Trust for A, created in Y1. Income to A for 20 years, then principal. Income interest qualifies for the exclusion, principal interest doesnt. Ho-hum. In Y2, trustee accelerates payment of principal to A. Settlor gets another exclusion! Woot. Qualified transfers to educational institutions or medical care providers on behalf of an individual. 2503(e). o Must be directly to the organization from the donor. What Doc did.

Crummey trusts: Gets around the present/future interest problem with gifts into trust under the 2503(b) exclusion by forcing a present interest. Beneficiaries must have the right to demand that the gift into the trust be given to them outright within so many days of the gift being made (a Crummey power). o 2 days not enough. 30 days is plenty. Use 30 to be safe. o Power must not be illusory. Knowledge that the right exists. No agreement understanding that the demand will not be made. Persons with the right must have economic substance in the transaction. Beneficiaries must know that the gift is being made. No writing requirement, but do it anyway for proof. (a Crummey letter) Dickman v. Commissioner Court holds that a zero-interest loan is the gift of the right to use money, which itself has a FMV and can be taxed as a gift. Also appears to tax pretty much any intra-family gift or loan, right down to the use of a house or car. IRS says they wont tax that sort of thing. Trust us, I guess. Bradford v. Commissioner J.C. Bradford owed $300K to First National Bank. NYSE didnt like him having that much debt, so he had his wife (who owned $15K in assets) write a note to the bank in exchange for their returning his. IRS said gift! Court said no. She only has $15K in assets cant give a $300,000 gift! No real transfer of property, so no gift. Court focuses on the substance of the transaction a guaranty rather than the form a gift.

DiMarcos Estate v. Commissioner Guy takes a job at IBM with widows benefits. Later gets married, then dies. IRS says gift: court says no. No property because IBM had control over the benefit. No transfer because only two times it could have been transferred at death (which by definition would be not a gift) or when he was hired (way too early, didnt have a wife yet). If anyones making a gift, its IBM. Commissioner v. Hogle Guy sets up a trust for his kids with himself as trustee. Administers the trusts very well, they grow a lot. IRS said gift of the services, or of the increase in value of the trust. Court says no. Services arent property and cant be gifted. Trust income is from assets of the trust, in which guy never had a property interest. Smith v. Shaughnessy Guy sets up a trust: income to wife for life, remainder to settlor if still living, else to whomever wife shall appoint by will. Life estate obviously a gift, reversion obviously not. IRS argues contingency is taxable, and court agrees. Just because its complicated and intangible doesnt make it not valuable. Its property, its transferred, its gratuitous, its a gift. Burnet v. Guggenheim When is a revocable trust taxed? See above. Sanfords Estate v. Commissioner No gift is made where donor retains power to choose who gets the beneficial enjoyment, because the donor hasnt really parted with anything yet. Commissioner v. Wemyss Any transfer made for otherwise valid consideration that cannot be valued in dollars is a gift. Merrill v. Fahs Guy pays his new fiance to sign a prenup - $300K in exchange for relinquishing marital rights to the estate. Court rules a gift relinquishment of a marital right was not money-valuable and so no consideration under 2512(b). Revenue Ruling 68-379 The discharge of a non-marital legal right (for instance, the right to support, rather than dower or curtesy) is good consideration for gift tax purposes since the right can be valued in dollars. Commissioner v. Harris An imbalance in who gets what in a property settlement pursuant to a divorce is not a gift, as the settlement is subject to court modification and approval. Set up passage of 2516. Spruance v. Commissioner H&W divorce. Set up trust, income to H&W for life and kids until majority, remainder to kids on H&Ws deaths. Income interest to wife & kids not gifts under 2516 (property settlement to W, reasonable support for minor kids), but remainder to (by then adult) kids held a gift b/c didnt fall into a 2516 category.

Hackl v. Commissioner Scary scary case. Guy puts a lot of assets into an LLC, hands out less than the exclusion amount worth of them to his descendants each year. Shares arent transferable, LLC is losing money. Court says the shares are a future interest because theres no substantial economic benefit to the shares. Cristofanis Estate v. Commissioner A donor is entitled to an annual exclusion for each beneficiary of a Crummey trust, even contingent remaindermen, if the Crummey power is real/not illusory.

The Estate Tax The Gross Estate Consists of most everything. 2031. Including sections: o 2033. All property to the extent of the interest therein of the decedent at the time of his death. Must be a classic interest in property, not an equivalent. Cash, notes, stock, real estate, clothing, Enforceable contract rights are includible under 2033, but mere expectancies arent. Barrs Estate. Value of rights is set at time of death. Dont count contingencies nullified by the death. Granger. Question: value of a note for $4M held by decedent. 30 days after death, note is worthless. Worth $4M (value at time of death, IRS view) or $0 (what the beneficiaries actually got, taxpayers view?) Probably FMV of note, but FIGURE OUT. Same tune: P dies during jury deliberations. Estate contains a contingent interest in the judgment, has some value. If the judgments > 0, include the contingent value. If the judgment is 0, dont include anything and let the IRS come after you. Ex. A hit by a drunk driver. Racks up major medical expenses then dies. Family sues for wrongful death, wins. Medical expenses are includible b/c accrued prior to death. Wrongful death damages not includible, nor are future earnings, because there was no property right in those. o 2034. Property passing through dower & curtesy or elective share is includible. This section is needed because the decedent loses all rights in property passing through dower/curtesy/elective share immediately upon death. Nearly irrelevant due to the unlimited marital deduction. o 2040. Joint interests. Joint tenancies, tenancies by the entirety, joint bank accounts. General rule: 2040(a). First guy to die has the entire value of joint property included in his estate, less any part owned by another joint tenant,

and not received by gift from the decedent. Exclude from the decedents estate, though, (value at death)((survivors consideration paid)/(entire consideration paid)) Ex. 60yo gives a interest in property to a 20yo. Pays gift tax on the half-interest. 60yo dies. Entire property is included in his gross estate because the interest was received by gift from the decedent. Its taxed twice! Ex. Same, but 20yo dies first. None is included in the 20yos estate because of the exception. Goes back to the 60yo who has already paid gift tax on the half! Husband and wife (much more common): 2040(b). Half goes in the estate of the first spouse to die. Full value goes in the second. o 2035. Gifts made within 3 years of death. Only applies to a few situations. Interests transferred within 3 years of death, which if still held by the decedent at death would have been includible under 2036-38, 2042, are includible in the gross estate. 2035(a). Gift taxes paid on any gift made in the last 3 years of life are included in the gross estate. 2035(b). Equalizes the tax impact of gifting vs. bequeathing your estate. o 2038. Property transferred where the transferor possesses a power to revoke, alter, or amend are includible in the gross estate of the transferor. Power can be qualified, exercisable in concert with someone else, whatever. Still includible if you keep it. In business situations, a benefit granted by contract that can be changed by agreement of the parties is not includible. Very limited exception. Tullys Estate. Ordinarily, transfers completed by entering into a contract are transfers for purposes of 2036, 2038. Remember that a power to alter or amend that requires consent of all interested parties does not invoke 2038, as all trusts allow this implicitly. What sorts of powers trigger 2038? Revoke. Change beneficiary. Change when beneficiary gets money. Lober. Control over the principal. Administrative power to make trust investments does NOT trigger 2038. State Street, Old Colony Trust Co.. This is a huge loophole, since the administrators choice of investments has a great deal to do with who income beneficiary or remainderman gets paid. The trick to get around all this is to make someone else the trustee, and retain the right to replace the trustee. Separates the donor from the power. This doesnt work, though, if the donor can replace the trustee with himself or with a subordinate person.

Strangely, you can make your spouse the trustee initially and have no 2038 problems, but if you can replace the trustee with your spouse (or yourself or any other subordinate) then you have issues. Even if a power to alter or amend (probably not revoke) is possessed, 2038 is not triggered if the power is subject to a contingency that hasnt happened yet. 2038 is not triggered if the power is removed if it is subject to an external standard enforceable by a court of equity. o Examples: support, education, maintenance, welfare. Trustees have the discretion to accumulate income unless otherwise required for the welfare of the beneficiary. o Not examples: happiness, best interests, enjoyment, as the trustees see fit. Different parts of a trust (income paid, income retained, principal, etc.) can be treated differently under 2038. Only the part subject to the power to revoke, alter, or amend is includible in the gross estate, unlike 2036. The Reciprocal Trust Doctrine A has a child B, and X a child Y. A and X each give their own children $12K, and each others children $12K. Court will see through this and deny the two annual exclusions. A creates a trust in X, income to Y, remainder to Y. X creates a trust in A, income to B, remainder to B. Neither settlor retains any powers, but gives power to alter or amend to the trustee. Again, court will uncross the trusts and include them under 2038! Essentially, the reciprocal trust doctrine says that if reciprocal trusts would have been includible if self-settled (A and X each settlor and trustee for their own childs trust), they will be includible in eachs gross estate. An objective test are the parties in the same situation they would have been in had they self-settled the trusts? Graces Estate. Note that if A and X each name M the trustee, the trusts would not be includible if self-settled and the reciprocal trust doctrine will not apply. You dont have to retain the power for 2038 to apply merely possess it. For instance, A sets up a trust for his kids; Y trustee with power to choose beneficiaries. Doesnt retain power to change trustee. Y dies, court appoints A trustee. Now includible under 2038!

2036. o 2036(a). The full value of any transfer with a retained interest in possession or enjoyment of or income from the property is includible. Doesnt have to be formal. Facts can give rise to a inference of a tacit life estate. Rapeljes Estate. To be includible, the power or interest must be retained: For life For a period not ascertainable without reference to your death For a period that did not in fact end before your death

Again, if the power or interest is subject to an external standard one enforceable by a court of equity then its not includible under 2036/38. The right must be retained not merely possessed. o 2036(b). The anti-Byrum rule. The retention of the right to vote controlling stock in a trust is a retention of enjoyment for 2036 purposes. Only works for corporate stock, not partnership interests. 2039. Annuities. o 2039(a). Gross estate includes annuities or other payments payable to any beneficiary if the decedent possessed the right to receive the beneficiary. So self-and-survivor annuities are includible; $900/mo to A for his life, then $900/mo to As wife for her life. Value of $900/mo. for As wifes expected lifespan is includible. Similarly, guaranteed payments to A for 10 years. Actuarial value of the remaining payments is includible. o 2039(b). Only an amount of the annuity proportionate to what the decedent (or his employer) paid for it is includible. o Remember, just because an annuity isnt taxable here doesnt mean youre out of the woods it might be in a trust with a retained life estate or something silly like that. 2042. Life insurance. o A policy on the life of the decedent is includible if: Payable to the executor. 2042(1). Obvious stuff is included payable to me or my estate. Also, insurance proceeds which the decedents creditors can get ahold of under state law are considered payable to the executor. This is unusual, as most states exempt life insurance proceeds from creditors claims, but can happen: A has a policy on his life, payable to his son, which he pledges as collateral for a loan. Payable to anyone, AND decedent held incidents of ownership. 2042(2). Incidents of ownership may be exercisable either alone or in conjunction with others to justify inclusion. Incidents of ownership include anything that affects who gets the economic benefit of the policy. Ability to: o Change beneficiary, or add more beneficiaries o Cash out the policy o Borrow against the policy o Pledge the policy as collateral o Change the terms of the policy Ability to increase the premiums of a life insurance policy is NOT an incident of ownership. A transfer of the incidents of ownership within 3 years of death is no good. 2035. o A classic estate planning tool is to buy a life insurance policy and put it into a Crummey trust. However, if the decedent makes the transfer, pays the premiums,

and is the trustee, that makes for incidents of ownership under 2042(2). (Have to give Crummey powers because each payment is a gift.) Deductions from the gross estate: o 2053. Funeral expenses, administrative expenses, claims against the estate, and unpaid mortgages (as allowable under state law) are deductible. Funeral expenses: Must be allowable under state law and the Federal definition of a funeral expense. For instance, giant goddamn mausoleums are acceptable Federal funeral expenses under 20.2053-2. However, expenses for a psychologist for grieving may be acceptable funeral expenses under state law but are not under Federal law. Claims on the estate: Must be legally enforceable in the jurisdiction at the time of death Executor must do all that is necessary to make the debt legally enforceable after death o As in, notify creditors to register their claims against the estate with the probate court lest they be barred. Barred claims are not deductible. Deduction is limited to the extent which the indebtedness was incurred for full consideration in money or moneys worth. Unpaid mortgages: Different from claims on the estate, because theres a lien on some property in the gross estate. (Mortgaged property must be in the gross estate). If the mortgaged property is under water with right of recourse, full debt is deductible. If the mortgaged property is under water with no right of recourse, then the property just goes to the creditor. Not includible in the gross estate, and the debts not deductible. Deduction is limited to the extent which the indebtedness was incurred for full consideration in money or moneys worth. Administrative expenses: Must be actually and necessarily incurred in the administration of the estate. Federal standard. Must also be allowable under state law. State standard (where Bosch applies). Allowable administrative expenses: o To pay debts, expenses, and taxes o To preserve the estate (maintenance) o To effect a distribution (paying a lawyer to draw up a deed) Hibernia Bank seems to stand for the proposition that allowable administrative expenses that are too high (for instance, maintenance on an estate left open for a very long time) will be found non-deductible under Federal law. o 2055. Charitable deductions. ( 2522 for gift tax.) Charitable gifts are deductible. Must be a qualified charity:

Charitable, scientific, humanitarian, religious, governmental. Cant accrue to a single person. Theres lobbying limitations if youre a charity. Charity cant be against public policy. Has to be a real gift not a disguised gift to yourself. o 2056. Marital deduction. Elements: Passes from the decedent o Goes directly from the decedent to the surviving spouse directly. Cant be bequeathed to someone else then gifted to Mom. Cant be gotten from a will settlement in a way not intended by the will. To the surviving spouse o Have to be married to her at the time of death. State law. o She has to still be alive after your death. State law. o Has to be of the opposite sex. FDMA. o Hard to prove common-law marriages in court. Included in the gross estate o Cant create a deduction for something not in the gross estate. Deductible interest (not barred by 2056(b)) o CANNOT be a non-deductible terminable interest. One that: Ends due to lapse of time or some contingency. Passes to a surviving spouse and a third party Goes to the third party after the spouse. It doesnt have to actually go to the third party. It must merely be a possibility. Remember to make sure that both spouses unified credits get used up! You waste $2M tax-free dollars if you just leave everything to your spouse. A dies, leaving an estate of $4M. Leaves $2M to kids, $2M to wife. Wife dies, leaving the other $2M to kids. No taxes. A dies, leaving an estate of $2M. Leaves $2M to wife outright, $2M in trust to wife for life, then to kids. Outright bequest qualifies for the marital deduction. Trust does not qualify a nondeductible terminable interest! Wife gets the economic benefit of the money and A gets the tax benefits. Hooray! Suppose wife needs more power over the trust funds than a simple life estate would give her. You cant give her outright power to invade, because then a court might find that that she had the funds outright, and include it in her gross estate when she dies. What you can do is give the trustee power to invade on her behalf. Deductible terminable interests:

Its not unusual that you might not want to give your wife a whole bunch of money because you dont trust them to manage it entirely. 2056(b)(5). o Elements: Life estate in some property. General power of appointment. o Must be ALL INCOME, paid annually or more frequently. Including stub income. Has to be real income! Trust must have productive assets, or wife must have the right to demand that the trust invest in productive assets. o General power of appointment must be exercisable by her alone in all events, and should she not exercise this power, it must pass to X. Include that exact language. o Used for when you trust your wife to do whats right with the money. 2056(b)(7). Qualified terminable interest properties (QTIP). o Elements: Pass from the decedent Qualified income interest for life in the surviving spouse All, or a specific portion, of the income for life. No person can appoint the property to anyone other than the surviving spouse, especially the surviving spouse herself. (Cant be given away.) Executor elects to treat the property as QTIP QTIP treatment is optional! Sometimes youd rather just pay the tax. Either way, goes in either his or hers estate. If no election, terminable interest, so includible in first to die. If election, QTIP, includible in the spouses gross estate under 2044.

Barrs Estate v. Commissioner Guy works for a company that has a wage dividend plan companys board may decide to pay out a dividend if the company does well enough. If they decide to pay, worker has to be alive to be entitled, but board has discretion to pay the dividend to a deceased workers widow. Have nearly always done this when dividend is paid, and have paid a dividend almost every year for fifty years. Guy dies, IRS wants the wage dividend included. Court says this is a mere expectancy and is not includible!

Goodman v. Granger Employee has a perpetual employment contract for $6K/year unless he quits or commits a crime. Instead, he dies. Future value of payments is includible in his gross estate. Taxpayer wants to include the reduced value of taking into account the contingency he might quit or get fired court says no, those contingencies went away when he died, and payments are valued at the time of death when the contingencies no longer existed. Helvering v. Safe Deposit & Trust Co. 2033 is read restrictively. Life estates arent includible under 2033 because theyre worthless at death. General testamentary powers of appointment arent includible under 2033 because theyre not a classic interest in property. (Theyre now includible under 2041.) To be includible under 2033, must be a classic interest in property. Technical Advice Memorandum 9207004 Guy dies in a plane crash with a load of marijuana. State-law presumption that he owned it, so includible? Strong public policy against drugs, so yes. Valued at street value (weird, since probably couldnt sell it for that). Lober v. United States Decedent creates trust for his kid, is trustee. Income to accumulate until kid is 21, paid to the kid between 21-25, principal is the kids thereafter. Decedent could pay principal to kid anytime. Court held that the decedents power to pick the date at which principal was paid was a power to alter or amend, and the corpus was thus includible under 2038. Tullys Estate v. United States T, D, and company made a contract for the company to pay T and Ds widows $104K on their deaths. T dies, company pays. IRS says this was includible under 2038 because T could have altered or amended the benefits to his widow in concert with D. Court says no T only had a power of persuasion. Weird, because 2038 explicitly extends to retained powers exercisable only in concert with others. Limited to business situations. Jennings v. Smith Sets up the external standard qualification for 2038. Leopold v. United States Guy created a trust for his daughter, he was trustee. Income was to be paid out as necessary to support the daughter, otherwise to be accumulated; he was allowed but not required to pay out principal. Principal and accumulated income were held includible since he retained control over it only the paid support income and the actuarial value of the future income stream were not includible. United States v. Graces Estate If two reciprocal trusts leave the parties in exactly the same position as if they had self-settled the trusts, and the self-settled trusts would have been includible under 2038, then the court will uncross them and they will be includible.

Rapeljes Estate v. Commissioner Lady who gifted her house to her kids (and paid gift tax on it) but continued to live there and pay taxes on it was held to have a tacit life estate in the property, so it was includible under 2036 (and thus taxed again). Maxwells Estate v. Commissioner Lady gets into a sale-leaseback transaction of her house with her kids. Sells for $270,000 (probably a low value), but forgives $20,000 (annual exclusion) immediately and takes a $250,000 note. Forgives annual principal payments of $20,000, pays rent to the kids equivalent to the interest payments. Court thinks this is getting a little too cute and finds that there was no real transaction here. The true value of the house was includible under 2036. Old Colony Trust Co. v. United States An administrative power to choose investments (say, high income vs. high growth) is not a power to choose the beneficiaries because a trustee has a legal duty to be fair to all beneficiaries. However, a power to withhold income for the best interests of the beneficiary is too much power in the settlor. Includible. United States v. OMalley Decedent as trustee had power to accumulate or distribute income obviously includible under 2038. But was just the body of the trust included, or the accumulated income? Doesnt seem like a transfer, really. Court said each decision to accumulate rather than distribute income is a transfer, thus bringing it into the estate tax. United States v. Byrum Court said the retention of the right to vote a controlling block of stock held in a trust was not a 2036 retention of enjoyment. Congress disagreed and so passed the anti-Byrum rule, 2036(b). Farrels Estate v. United States DONT GET. SOMETHING ABOUT RETAINED VS. SOME OTHER CRAP. Commissioner v. Noels Estate Plane crash insurance case. Have to look at the policy facts (the facts of the situation as determined by the agreement between insurer and insured) to determine who has ownership of the policy. Guy didnt follow the letter of the agreement in transferring the policy to his wife (didnt indorse as required) so he still owned the policy. Includible in his gross estate. Even if hed transferred it properly, it still would have been includible under 2035! Wife would have had to buy the policy outright. Hibernia Bank v. United States Administrative expenses must be allowable under stand law, and also actually and necessarily incurred in the administration of the estate as under Federal law. Leopold v. United States

Guy arranges with his ex-wife to leave a $250K trust fund for his daughter in exchange for the wife relinquishing support payments. That relinquishment was money or moneys worth under the 2043(b)(2) safe harbor, and so was a valid claim on the estate under 2053. Rare and unusual circumstances. Jackson v. United States Will called for $3000/mo. support for a widow for 3 years or until remarriage. Court held this was a non-deductible terminable interest because Interest ending due to lapse of time and a contingency Passed to surviving spouse and a third party (through the residue of the estate) Can possibly go to the third party after the spouse. Contingency (remarriage) need not actually occur the presence of the contingency is measured at the time of death. Carpenters Estate v. Commissioner General power of appointment must be exercisable by the surviving spouse alone in all events for a trust to be deductible under 2056(b)(5). Further, property received from a settlement over a will in contradiction of the will does not pass. Shelfers Estate v. Commissioner You cant call something a QTIP, take the marital deduction, wait until the statute of limitations has run on the estate tax return, then turn around and claim it wasnt a QTIP and therefore isnt includible in the surviving spouses gross estate. Also, stub income neednt be included in all income for QTIP.