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Significant recent developments in estate planning.

Once again, we have prepared our annual review of significant recent court decisions and IRS rulings. The results, contained in this issue and in the November and December issues, concern estate planning developments during the period Apr. 1, 1991 through Mar. 31, 1992. The summaries of developments will be supplemented by editorial comments (i.e., "Critiques" or "Planning hints") as they occur to us.

As a general note of caution, the estate planner should determine the current status of a reported development, particularly if the IRS has appealed or otherwise indicated that it will not follow a court decision. In such cases, the estate planner should emphasize to clients that the recommended plan, although supported by a court decision, may lead to litigation in which the IRS may prevail.

Part I, below, will discuss the following topics: gift tax, disclaimers, life insurance and retained interests.

In general, no developments occurring after Mar. 31, 1999. are included within this review, except when a court case or ruling has been issued affecting a development included in the text of this article.

Gift Tax

In the area of gift tax, the following developments occurred.

* Transfers in trust constituted completed gifts and were not includible in the grantor's estate despite limited powers retained as trustee.

* A court order was ineffective to rescind a trust termination for Federal gift tax purposes.

* Relinquishment of powers resulted in a completed gift.

* Annual exclusion gifts to intermediaries were deemed a sham.

* Payments to mistresses were gifts, not taxable income.

* State law provision terminating QTIP trust on divorce prevents marital deduction qualification.

* Transfers in trust were completed gifts even though grantor retained limited powers as trustee

In IRS Letter Ruling 9113010,[1] in 1987, the grantor established five irrevocable trusts, one for each of his two children (adults) and three grandchildren {minors). The trust instrument granted each beneficiary the right to withdraw annually any property contributed to the trust, and imposed on the trustee the obligation of giving notice of such contributions. The children's trusts terminated on their attaining age 35, the grandchildren's trusts provided for staggered distributions of principal and accumulated income when the named beneficiary attained the ages 25, 30 and 35. I/a beneficiary died before age 35, trust property would be distributable either pursuant to a testamentary general power of appofntment or, in the absence of such appofntment, to the beneficiary's estate.

The grantor, as trustee, possessed the power to accumulate trust income or distribute income and principal to a beneficiary for purposes of support, maintenance, medical care or education. A disinterested trustee [who could not be the grantor) had the additional power to distribute accumulated income or principal for purposes of beneficiary travel, the purchase of a first home or the acquisition of a business.

The IRS concluded that the gifts in trust were complete and, on the death of the grantor, no portion of such trusts' property was includible in the grantor's estate.

Critique: The IRS noted that the powers of invasion retained by the grantor were expressly limited to purposes of health, education, maintenance and support, ascertainable standards under Regs. Sec. 25.2511-2[c]. The more expansive powers to make distributions for travel, the purchase of a first home or the acquisition of a business, while not falling within the ambit of an ascertainable standard, did not result in an incomplete gift because the grantor expressly was unable to exercise those powers under the terms of the instrument.

The IRS further ruled that no portion of the trust property was includible in the grantor's estate since his retained powers of invasion were limited by an ascertainable standard and, therefore, fell outside the provisions of both Sec. 2036 and Sec. 2038.

Planning hints: The trust instruments in this ruling were well crafted and achieved multiple objectives. First, they allowed for annual gifts to be made to the trust that would qualify for the annual exclusion under the Crummey rule. Second, the primary trustee remained the grantor, but his powers were limited by an ascertainable standard. The imposition of this ascertainable standard allowed the gifts to be complete when made and also excluded the trust property from the grantor's estate at death. Finally, additional flexibility was provided in the instrument/or discretionary distribution of other amounts, provided a disinterested trustee was named and decided to act.

* State court order rescinding trust termination ignored for gift tax purposes

In IRS Letter Ruling (TAM)9127008,[2] in 1976, the grantor transferred shares of corporate stock to a revocable trust. This trust was to continue in existence until Dec. 31, 1983, unless the grantor extended the term by written notification to the trustees. Income was payable to the grantor. On termination, the trust property was distributable among beneficiaries designated by the grantor in the trust document.

In 1983, the grantor properly extended the trust term until Dec. 31, 1986. In January 1987, the trustee informed the grantor that the trust must be terminated in accordance with the terms of the instrument. The grantor attempted to prevent this by orally expressing his intention to further extend the trust term. Nevertheless, on advice of counsel, the trustee terminated the trust and distributed the stock to the named beneficiaries.

The grantor died in January 1988 and, on a review of his estate, the executor concluded that it would be advantageous to include the stock in the Federal estate tax return to achieve a basis stepup. The estate secured a local court order rescinding the termination and restoring the stock to the trust through the date of death.

The IRS ruled that the local court order was ineffective for gift tax purposes and that the trust, in fact, terminated in 1986, at which time a Federal gift tax liability arose. It also concluded that the trust assets were fully includible in the estate under Sees. 2035 and 2038.

Critique: The trust terms clearly stated that termination would occur in the absence of any positive action by the grantor expressed in writing by midnight Dec. 31, 1986. No such written notification was given, so the grantor's power to alter, amend or revoke the trust also terminated. The termination of the grantor's dominion and control resulted in a completed gift at that time.

The IRS noted that circuit courts have consistently held that judicial reformation cannot change the Federal tax consequences of a completed transaction? In light of this judicial authority, the action taken by the local court was deemed not to rescind the termination or eliminate the grantor's obligation to file a gift tax return and pay any gift taxes that might be due.

With respect to the estate tax issue, however, the IRS concluded that the trust property was fully includible in the gross estate of the grantor at its Federal estate tax value. Sec. 2038(a)(1) provides that a decedent's gross estate will include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, when the full enjoyment of the property was subject at the time of the transferor's death to any power to alter, amend, revoke or terminate, or when such power is relinquished during the three-year period ending on the date of the decedent's death.

As of Dec. 31, 1986, the decedent had the power to amend or extend the trust. According to the IRS, his failure to do so and the resulting termination of the trust were equivalent to a relinquishment within the meaning of Sec. 2038. Since this relinquishment occurred within three years of the decedent's death, the value of the trust was includible in his gross estate under Sec. 2038. The IRS also stated that inclusion would also be mandated under Sec. 2035[d][1].

Planning hints: Letter Ruling 9127008 once again demonstrates the/utility,/or Federal transfer tax purposes, of incurring the cost and aggravation of obtaining a state court order to reverse or perfect a transaction that has closed during a previous period. In this instance, the facts are particularly poor. The grantor/ailed to make the required written notification, the trustee informed the grantor that the trust terminated, and all trust assets were distributed to the named beneficiaries be/ore the grantor's death.

Interestingly, the estate received the desired basis stepup anyway. The IRS's strict interpretation of the Sec. 2038(a)(1) relinquishment language has been costly/or many taxpayers [see the discussion of IRS Letter Ruling 9141005 in the "Retained Interests" section, infra]. In this instance, it was fortuitous.

* Gift completed on relinquishment of certain powers

In Val. [4] in 1981, the grantor transferred shares of a family corporation to a trust. The trustees possessed the unfettered power to accumulate or distribute income for any or all of the trust's beneficiaries. The trustees also possessed an unrestricted sprinkling power among the beneficiaries for both corpus and income. No beneficiary was entitled to a corpus distribution as a matter of right except on the final termination of the trust.

Beneficial interest in the trust was divided into 100 units. Many of these units were given, over a period of time, to various members of the grantor's family. The grantor retained the unfettered ability to remove trustees without cause and to appofnt successor trustees.

In 1984, the grantor's son was named his father's conservator. In that capacity, he obtained a court order amending the trust, under which the grantor relinquished his rights to remove and appofnt trustees and any eligibility to receive distributions under the sprinkling provisions. Concurrently, the trustees canceled the previously transferred certificates of beneficial interest and the son, as conservator, purportedly transferred the original certificates to family members.

The Tax Court held that the grantor's relinquishment of certain powers and interests under the court order resulted in a completed gift. The original transfers of certificates of beneficial interest purported cancellations thereof, and later retransfers were irrelevant.

Critique: The certificates of beneficial interest con/used the facts in this case because the trustees' sprinkling powers appeared to override certificate percentages, at least until trust termination. Certificate ownership apparently made the holder a permissible beneficiary and the grantor continued to hold some certificates until after the trust instrument was amended. The parties agreed that the sprinkle power, coupled with the grantor's retained ability to terminate and substitute trustees at will, constituted a retention of dominion and control over the transferred assets. A completed gift was deemed to occur, however, on the later issuance of the court order ratifying the grantor's relinquishment both of his power to substitute trustees and of his beneficial interest under the sprinkling powers.

The taxpayer asserted that the gift should be valued as a transfer of several minority interests in the trust rather than a gift of a control block of stock to the trust. This was based on the argument that the transfers subject to gift were the various beneficial interest units in the trust that were conveyed to various family members. As such, a deep discount in value was asserted. The Tax Court disagreed.

The court noted that the beneficial units, by their terms, did not entitle any beneficiary to a specific portion of corpus; they merely indicated the proportion of corpus that each holder was to receive on termination. However, during the duration of the trust, the trustee continued to have sole discretion to distribute income and corpus among all the beneficiaries, irrespective of the number of beneficial units held. The Tax Court concluded that the completed gift on the issuance of the court order was the transfer of corporate shares to a single trust. This transfer did not involve a minority interest. An undervaluation penalty was assessed under Sec. 6660.

* Multiple transfers deemed a sham

In Heyen,[5] the donor transferred blocks of corporate stock, each of which was valued at less than $10,000, to 29 unrelated individuals. Shortly thereafter, 27 of these recipients reassigned their stock back to the corporation so that it could be reconveyed to members of the donor's family. The donor filed a gift tax return/or the period, but excluded the 29 conveyances. The Tenth Circuit concluded that the initial transfers to the unrelated individuals were shams and that the series of conveyances were part of a fraudulent scheme to transfer shares to the donor's family tax free through the annual exclusion rule.

Critique: The taxpayer relied on Regs. Sec. 25.2511 - 1 [g][1], which states that donative intent on the part of the transferor is not an essential element in the application of the gift tax. Thus, the donor's intent with respect to the conveyances to the original transferees was not relevant for purposes of determining whether a gift had occurred, provided the necessary formal steps had been taken.

The court disagreed. It noted that, while donative intent is not a prerequisite for the application of the gift tax, the regulation does not preclude consideration of the donor's intent and subjective motives when determining whether the decedent made a gift subject to the gift tax. The evidence submitted at the trial clearly demonstrated that the donor's intent was to' make transfers to family members. The donor never looked on the original transferees as more than an intermediate step in the overall donative scheme. In effect, the intermediate recipients were no more than vehicles to use to obtain annual gift tax exclusions on transfers that were ultimately meant to be reconveyed to family members.

The court then challenged the taxpayer's assertion that a "substance over form analysis" applies only to income tax cases. The court cited Chanin[6] and Vose[7] for the proposition that substance over form applies to the gift tax, as well as the income tax.

Finally, the court noted that the refusal of two of the 29 recipients to reconvey the stock back to the corporation was not determinative. The fact that these recipients, after receiving the shares, refused to take the second step in the overall scheme did not change the fact that it had been the donor's intention that they would participate in the reconveyance.

The court ruled that the transfers to the family members were the sole gift, that the annual exclusions claimed were inappropiate, and that the overall scheme was fraudulent within the meaning of the tax code.

Planning hints: This scheme was patently intended to make an' "end run" around the annual exclusion provisions of the Code. The original recipients of the stock were unrelated parties and in no way objects of the donor's bounty. The expectation that each would immediately reconvey these shares to the donor's family members was sufficient evidence that no donative intent existed in favor of these recipients.

* Support of mistresses a gilt, not income

In Hart}s,[8] the transferor conveyed in excess of $500,000 to each of two women, who were his mistresses. These payments were made over an extended period of time and substantially contributed to their support. With few exceptions, none of these transfers were reflected on gift tax returns filed by the transferor, nor were they reflected in the women's income tax returns. The Seventh Circuit rejected the IRS's contention that the transfers represented taxable income to the taxpayers.

Critique: The IRS contended that the women had received taxable income for three reasons. First, the payments were made over regular periods during several years, second, one of the women had listed the transferor as her employer on a bank card} and third, the transferor's failure to report the transfers on his gift tax return indicated that he viewed the conveyances as something other than a gift.

The Seventh Circuit noted that the IRS's case rested on a demonstration that the taxpayers had willfully failed to report the transfers as taxable income. However, most of the cases dealing with similar payments had previously concluded that a gift, rather than taxable income, had resulted. The Seventh Circuit stated that Duberstein,[9] a 1960 Supreme Court case, "provides no ready answer to the taxability of transfers of money to a mistress in the context of a long term relationship. The motivations of the parties in such cases will always be mixed. The relationship would not be long term were it not for some respect or affection. Yet, it may be equally clear that the relationship would not continue were it not for financial support or payments.''[10] Accordingly, there could be no willful, criminal intent. An IRS income tax fraud assertion could not be sustained given the inherently conflicting motivations in these relationships.

The Seventh Circuit also noted that previous courts had concluded that payments made under an antenuptial agreement or Marvin-type palimony payments are generally gifts, rather than taxable income.[11]

* Tennessee statute de}eats gift tax QTIP

In IRS Letter Ruling {TAM} 9127005,[12] in 1986, the donor created a trust for the benefit of his spouse. Under its terms, the donee spouse was to receive income for her life, with the remainder passing to their child. The trust was irrevocable and the donor retained no powers to amend, revoke or terminate.

The IRS disallowed the marital deduction for qualified terminable interest property [QTIP] because of a Tennessee statute that mandated the termination of such trusts on divorce or armulment.

Critique: Sec. 2523[b][l]provides that no marital deduction will be available for a terminable interest. However, Sec. 2523(f)provides an exception for QTIPs. Sec. 2523[f][2] defines a QTIP as property in which the donee spouse has a qualifying income interest for life, and to which an election under that section is made. No person may have a power to appofnt any of the property to any person other than the surviving spouse.

The Tennessee law operates to terminate an income interest for a spouse in the event of divorce or annulment, unless there is express language to the contrary in the trust instrument. The trust instrument in this ruling did not address the issue of divorce or annulment.

The IRS concluded that the local statute would terminate the trust on divorce or annulment. The potential application of this statute violates the QTIP requirements unless the instrument expressly overrides the statute. Since such saving language did not exist in the instrument, the IRS found that no QTIP deduction was available.

Finally, the IRS stated that the donor's intention to qualify for the marital deduction is not sufficient grounds to allow a vofding or reformation of the trust terms to satisfy the requirements of Sec. 2523[f][2]. The transaction was clearly completed, both legally and for tax purposes, on the occurrence of the transfer.

Planning hints: Letter Ruling 9127005 clearly falls within the definition of a tax disaster. A transfer intended to qualify for the marital deduction resulted in substantial unintended gift taxes and/or use of credits. The donative intent of the transferor was frustrated. The ruling demonstrates the importance of considering state law when developing an overall donative or testamentary plan.


Recent developments involving disclaimers included the following.

* Disclaimer of a survivorship interest was valid despite state law prohibition.

* Voting partnership interests in a reorganization constituted a prohibited acceptance of benefits.

* Disclaimant must not control foundation's use of disclaimed property.

* Disclaimer of survivorship interest in personal residence valid

In IRS Letter Ruling 9135043,[13] the decedent and her spouse owned their personal residence in jofnt tenancy with right of survivorship. Both the down payment and all subsequent payments against the mortgage were paid by the decedent's spouse. Massachusetts law[14] provides that a surviving jofnt tenant may not disclaim that portion of an interest in jofnt property allocable to amounts which he contributed to that interest.

The decedent's will provided that the residue of her estate pass to her child. The surviving spouse proposed to transfer, within nine months of the date of death, and in writing, his one-half survivorship interest to their child. Both the surviving spouse and the child were to reside in the property after the transfer. The IRS ruled that the transfer constituted a qualified disclaimer within the meaning of Sec. 25 18.

Critique: sec. 2518 requires that a disclaimer occur within nine months after the date of transfer; that it be in writing, delivered either to the transferor or his legal representative within the nine-month period, that the disclaimant receive no interest or any other benefits prior to the disclaimer, and that the interest pass without any direction on the disclaimant's part. If each requirement is met, the disclaimer will be deemed valid for Federal gift tax purposes, regardless of state law.

In Letter Ruling 9135043, the proposed transfer conformed in all respects to Sec. 2518 and constituted a qualified disclaimer of the survivorship interest, notwithstanding the fact that Massachusetts law prohibited the surviving spouse from making a formal disclaimer within that jurisdiction because he was the sole contributor to the acquisition of the property.

The IRS cited McDonald,[15] which held that a survivorship interest for purposes of Sec. 2518(b)(2) was created on the date of the decedent's death since, before that date, the decedent could unilaterally sever the interest and defeat the spouse's right of survivorship. Accordingly, a disclaimer executed within nine months of death ins opposed to nine months after the jofnt tenancy's creation) qualifies.

The surviving spouse's intention to continue residence in the property after the disclaimer was also viewed as consistent with his continuing ownership interest, and not a receipt of benefits such as is barred by the statute. The IRS did state, however, that the surviving spouse's continued payment of 100% of the mortgage costs and taxes associated with the property would result in a gift to the extent allocable to the one-half tenancy in common interest held by the child after the disclaimer.

A similar result occurred in IRS Letter Ruling 9135044[16] with respect to a proposed disclaimer of a survivorship interest in a personal residence held in tenancy by the entirety. Once again, the IRS noted compliance with the formal requirements of Sec. 2518. It again cited McDonald for the proposition that the survivorship interest arose at death since it could previously be defeated by either party acting unilaterally. The IRS did not address in this ruling whether state law accorded both parties a unilateral right to sever their interest. In some jurisdictions, a tenancy by the entirety differs from a joint tenancy with right of survivorship specifically in that the former interest is not severable without mutual consent.

Finally, in Letter Ruling (TAM) 9140005, [17] the IRS found that a partial disclaimer of the survivorship interest in a jofnt bank account expressed in terms of a fixed dollar amount was valid. Once again, McDonald was cited as primary authority. In allowing the partial disclaimer, the IRS stated that a bank account is severable and that the surviving spouse could express her disclaimer in terms of a fixed dollar amount, rather than as a percentage or fraction.

Planning hints: These letter rulings indicate that the IRS now clearly recognizes that qualified disclaimers can be made with respect to a survivorship interest in a jofnt tenancy. Further, this disclaimer will be valid even though state law may, under certain circumstances, prohibit a disclaimer of such interests, provided the transfer is made consonant with what would have occurred under the decedent's will had the disclaimer been valid under local law.

* Conversion of partnership interests from limited to general status considered an acceptance under disclaimer rules

In IRS Letter Ruling [TAM] 9123003,[18] the decedent and the taxpayer created a partnership. The decedent held the sole 1% general partnership interest and 55.3% of the limited partnership interest. The taxpayer, who was executor of the estate, individually owned 37.23% of the limited partnership interests. Under the partnership agreement, the limited partners could not take part in the management of the entity, but did have the right {11based on a vote of more than 90% of the limited partner interests, to elect a successor general partner on the death of the existing general partner, and [2] based on a majority of the limited partner votes, to amend the partnership agreement, with the affirmation of the general partner.

Four days after the decedent's death, the taxpayer voted both the estate's and her interests to elect herself successor general partner and to effect a reorganization that converted the decedent's general partnership interest into a limited interest and 1% of the taxpayer's limited units into a general partnership interest. Within nine months of the date of death, the taxpayer renounced almost all of the residuary estate passing to her under the decedent's will. The IRS concluded that a qualified disclaimer did not occur and that the renunciation resulted in a taxable gift.

Critique: Sec. 2518(b)(3) establishes as a requirement for a qualified disclaimer that the disclaimant not accept the disclaimed interest or any of its benefits. Regs. Sec. 25.2518-2[d][2] provides that actions taken by a disclaiming party in the exercise of fiduciary powers to preserve or maintain the disclaimed property will not be treated as an acceptance within the meaning of the statute.

The IRS ruled that the taxpayer's actions, taken within four days after the decedent's death, constituted an acceptance of benefits in the renounced partnership units, since they conferred on the taxpayer the essential incidents of ownership attributable to the decedent's general partnership interest. This assumption of general partnership status could be achieved only through voting the combined units held by the taxpayer and the decedent's estate.

The recapitalization of the decedent's general interest into a limited interest also resulted in an impairment in the value of the estate's interest with a corresponding enhancement of that retained by the taxpayer. The IRS questioned whether this action was consistent with the taxpayer's fiduciary obligation to preserve and maintain the estate's assets.

The critical factor in support of the IRS's ruling was that neither the taxpayer's election as general partner nor the recapitalization of the partnership units of the taxpayer and the estate could have been achieved by a vote solely of the taxpayer's units. Both actions were dependent on the taxpayer's ability to vote the interests held within the

Planning hints: Arguably, the actions taken by the taxpayer were necessary in order to avofd dissolution of the partnership and to establish an effective successor general partner in light of the decedent's death. As such, they have at least an appearance of good business judgment underlying them. However, the taxpayer in this instance was wearing two hats, and associated with each was a potential conflict of interest. The IRS felt that the actions were essentially self-serving and possibly not consistent with fiduciary responsibility to the decedent's estate.

A more appropriate approach may have been for the taxpayer not to accept executorship over the decedent's will, thus leaving the decision to an independent executor. Alternatively, the disclaimer could have been exercised first, with resulting distribution of the units to the children. A partnership meeting then could be called to elect a successor general partner. Under these two alternatives, a similar final result could have been achieved as to the management of the partnership, and it is likely that the renunciation would have met the requirements of a qualified disclaimer.

* Disclaimer in favor of charitable foundation was valid and resulted in estate tax charitable deduction

In IRS Letter Ruling 9141017,[19] a grantor established a revocable trust which provided that, on her death, the trust assets would be distributed to her daughter. In the event of her daughter's death before her own, the alternate beneficiaries were two previously established charitable foundations. At the time of the grantor's death, her daughter, her daughter's husband, and two independent parties were directors of these foundations. The daughter was their chairman and her husband their president. Under the bylaws of the foundations, the boards of directors had unrestricted authority in the determination of donees and the amount of all donations.

The grantor's daughter proposed to disclaim her entire interest in the revocable trust and, in conjunction therewith, amend the foundations' by laws to provide that any amounts distributed from the trust would be allocated to a separate fund over which the independent directors would have sole authority to determine donees and the amount of donations. The IRS concluded that a qualified disclaimer would occur, provided the formal requirements of Sec. 2518 are complied with, and that a charitable deduction would be available to the estate.

Critique: Regs. Sec. 25.2518-2(d)(2) states that a beneficiary disclaiming an interest in property, who is also a fiduciary, may not retain a wholly discretionary power to direct the enjoyment of the disclaimed interest. Therefore, the daughter's disclaimer could not be effective if she and her husband retained those discretionary powers over the foundations' property accorded them as directors. However, the IRS also noted that the proposed amendments to the bylaws would effectively satisfy the requirements of the statute and regulations, even though the limitations related solely to that separate fund comprised of property received from the trust.

Under Regs. Sec. 20.2055-2(c)(1) an estate tax charitable deduction will be allowed for amounts passing to a charitable organization through a disclaimer, provided such disclaimer qualifies under Sec. 2518. The IRS ruled that the full amount of the revocable trust passing to the charitable foundations would qualify for an estate tax charitable deduction, provided a timely disclaimer is filed and the proposed amendments to the bylaws are made before the date of that disclaimer.

Life Insurance

Several developments had an impact on the taxation of life insurance, including the following.

* A right to repurchase an assigned policy was an incident of ownership.

* Various controlled corporation reorganizations did not cause loss of grandlathering in split-dollar arrangements.

* The three-year inclusion rule applied to a policy obtained by a trust through a conversion of an existing insured-owned policy.

* A policy transferred from a corporation to an irrevocable trust indirectly passed through the decedent's hands and was includible under the three year rule.

[*] Right to repurchase assigned policy was an incident o[ ownership

In IRS Letter Ruling (TAM} 9128008,[20] in August 1986, the decedent purchased a term insurance policy on his own life with a face value of $500,000. Under an agreement in June 1987, the policy was assigned to a third party, but the insured retained an option to repurchase the policy for an amount equal to the aggregate premiums paid by the assignee, plus simple interest at a 10% rate. The repurchase option could be exercised within the first 60 months from the date of assignment. The insured died in October 1988. The IRS concluded that a portion of the proceeds would be includible in the decedent's estate under Sec. 2035, and that the total proceeds were includible under Sec. 2042.

Critique: Sec. 2035(d)(1)and (2)provide that for decedents dying after 1981, Sec. 2035(a)will apply to a transfer of an interest in property that would have been includible in the value of the gross estate under Sec. 2042 (life insurance) if the decedent had retained the interest. Sec. 2042(21) includes in the gross estate of a decedent any life insurance payable to beneficiaries other than the insured's estate, provided the decedent possessed at his death any incident of ownership in the policy. The interrelationship of these two sections causes life insurance to be included within an insured's estate if it is transferred within three years of the date of death.

The IRS then referred to Silverman,[21] which held that, when Sec. 2035 is involved, the amount of life insurance includible in the gross estate of the insured is equal to the total proceeds received under the policy multiplied by the ratio of total premiums paid by the insured to total premiums paid. In effect, the Silverman court imposed a premium payment rule that excluded from the gross estate of the insured that portion of the proceeds that was attributable to premiums subsequently paid by the assignee of the policy.

As such, in Letter Ruling 9128008, the IRS concluded that one-third of the policy proceeds was includible in the decedent's gross estate under Sec. 2035 since one-third of the aggregate premiums had been paid by the insured be{ore the assignment.

However, the IRS noted that such a proportionate rule did not apply if inclusion was deemed appropriate under Sec. 2042. Sec. 2042 provides that if the decedent possessed any incident of ownership at the time of his death, the full amount of proceeds is includible in the gross estate. The insured contractually retained, or a 60-month period, the right to repurchase the assigned policy for an amount equal to the premiums paid by the assignee, plus interest.

The IRS noted that the amount of payment under this repurchase option was so small in relation to the potential proceeds payable under the policy, that it did not act to impair or materially affect the decedent's ability to teacquire the policy.

The repurchase option was therefore equated with a power of revocation. A power of revocation is an incident of ownership within the meaning of Sec. 2042. Since this power existed at the time of his death, the IRS concluded that the decedent possessed an incident of ownership over the policy within the meaning of Sec. 2042. Planning hints: In this ruling, the decedent's estate paid significantly more estate taxes on the insurance proceeds than was necessary had proper planning been in force. First, it is now recognized that no proceeds would have been includible in the insured's gross estate had the policy been acquired by the assignee initially, rather than by the insured. The Sixth Circuit in Headrick[22] clearly indicated that Sec. 2035 applies only if the insured possessed for a period of time, no matter how briefly, incidents of ownership in the policy. As such, the "beamed transfer" rule elaborated in Bel[23] no longer applies to post-1981 transactions. Had the assignee initially acquired the policy, no inclusion would have resulted with respect to the proceeds.

Secondly, had the insured simply assigned the policy under the terms enumerated in the ruling, except for the repurchase option, only one-third of the proceeds would have been subject to Federal estate tax. This assumes, of course, that the assignee actually paid from his own funds premiums after the date of assignment. The repurchase option caused this benefit to be lost by bringing the total policy into the estate under Sec. 2042. It is not clear what benefit the insured obtained, or thought he obtained, through the retention of this option. Perhaps if the Federal estate tax implications of the option had been clearly understood, a different course of action might have been followed.

* Corporate reorganizations did not override grandlathering of corporate-owned policy

In IRS Letter Ruling 9204041[24] a split-dollar insurance arrangement was made with a corporation, 75% of which was owned by the insured. Under the arrangement, the controlled corporation agreed to pay premiums equal to the annual increase in cash surrender value and the insured agreed to pay the balance. The corporation could borrow against the cash surrender value up to the corporation's investment in the policies and it could assign ownership of the policies to the insured or his nominees on payment to the corporation of its investment in the policies. The insured had all remaining rights under the policies. Within one month after obtaining the policies, the insured assigned his interest to an irrevocable trust for the benefit of third parties.

Five years after the acquisition, the corporation transferred all of its operating assets to a newly formed limited partnership in which it held a 95% interest. The remaining 5% of partnership interest was acquired by a newly formed corporation that was 100% owned by the insured. In March 1991, the first corporation transferred all of its assets to a newly formed corporation (the third corporation) in exchange for the third corporation's common stock. This stock was then distributed pro rata to the shareholders of the first corporation in liquidation.

Notwithstanding the position taken in Rev. Rul. 89.-145,[26] the IRS concluded that the right to borrow against the split-dollar policies, which now rested in the third corporation, did not constitute an incident of ownership that would trigger inclusion of the policy proceeds in the insured's estate.

Critique: The effect of the reorganizations was to transfer the split-dollar policy, and the corporate rights existing with respect to the policy, from the first corporation (which had acquired the policy) to the partnership and second corporation, and ultimately to the third corporation, which was formed in 1991.

Regs. Sec. 9.0.2042-1(c)(61 provides that proceeds of a life insurance policy that are not payable to the corporate owner will be includible in the insured's gross estate if he is the controlling shareholder. In this ruling, the insured's 75% interest in the corporation would be a controlling interest within the meaning of the regulation and proceeds payable to the irrevocable trust would be included in his gross estate if that corporation were deemed to hold incidents of ownership in the policy.

In Situation 3 of Rev. Rul. 76-274,[26] which involved a split-dollar life insurance agreement, the IRS concluded that the corporation's right to borrow against the policy up to the extent of cash surrender value did not constitute an incident of ownership within the meaning of Sec. 2042. Therefore, the corporate rights existing in Letter Ruling 9204041 would not have caused inclusion of the policy proceeds. However, in 1982, the IRS modified the ruling in Situation 3 with Rev. Rul. 82-145. Rev. Rul. 82-145 concluded that the right of a decedent's controlled corporation to borrow against the cash surrender value of the policy is an incident of ownership that would trigger inclusion of the third party payable proceeds in the gross estate. However, Rev. Rul. 82-145 expressly stated that it would not apply with respect to insurance policies obtained before Aug. 2, 1982, its date of publication.

At issue in Letter Ruling 9204041 was simply whether the series of reorganizations and recapitalizations caused the policy, which was obtained on Mar. 19, 1981, to fall outside of the grandfather provisions of the later ruling. The IRS concluded that they did not. The rationale for this finding was that the original insurance policy remained in effect from 1981 through 1991 without modification, and that irrespective of the various reorganizations, the ownership interest of the insured in the various entities was virtually the same as his interest in the original corporation at the time the policy was obtained. As such, there was no material increase in his ownership interest in either the entities or the underlying assets held by the entities, including the split-dollar policy of insurance. Planning hints: While the/acts in this letter ruling are relatively unusual, the ruling does demonstrate that a significant change has occurred with respect to the includibility of split-dollar insurance by a controlled corporation. In particular, any incident of ownership, including the right of the corporation to borrow against the cash surrender value of a split-dollar policy, will trigger inclusion of policy proceeds in the insured's gross estate when they are payable to beneficiaries other than the corporation. The estate tax benefits associated with the assignment of the insurance portion of a split-dollar policy will be obtained only if a controlled corporation has no incidents of ownership in the policy. A controlled corporation is one in which the insured owns more than 50% of the total combined voting power of the corporation.

* Insurance policy obtained through conversion right was not a new policy under Sec. 2035

In IRS Letter Ruling (TAM)9141007,[27] the decedent was insured under a group-term life insurance program that permitted him to convert the policy into an individual policy, without showing evidence of insurability, if he applied in writing within 31 days of termination of employment. About 98 days after retirement, the decedent submitted an application to the insurance company for an individual life policy equal to the maximum coverage allowable under his conversion fight. At the time of submitting his application, the decedent was uninsurable and did not volunteer for a medical examination. The insurance company issued a "new" individual policy to the bank-trustee of an irrevocable trust formed by the decedent's children. The insured died within three years of the policy's issuance. The IRS concluded that the full proceeds were includible in the insured's gross estate under Sec. 2035.

Critique: Sec. 2035(d)(2)provides that insurance proceeds will be includible in the gross estate of the insured when the policy has been transferred by the insured to a third party within three years of the date of death. The IRS recognized the line of cases[28] holding that the application of Sec. 2035(d)(2) requires that the insured have possessed incidents of ownership in the policy before the transfer. In effect, the issuance of a new policy on the life of an insured directly from the insurance company to a third party owner, without intervening incidents of ownership being held by the insured, does not fall within the are bit of the section.

The IRS stated that the sole issue here was whether the individual policy was a new policy or simply a continuation of an existing policy in which the decedent had held incidents of ownership. If the policy was the former, the proceeds were not includible, if the latter, they were.

The IRS noted a series of facts surrounding the acquisition of the policy. First, the policy was obtained in exactly the same amount that was permitted under the conversion provisions of the group-term arrangement. Second, the insured was uninsurable and could not have received the policy but for the terms of the group-term arrangement. Third, the policy was issued within the conversion period specified under the employer's plan and was, in fact, issued the day after his group-term coverage terminated under that plan. As such, the individual policy was issued so as to continue existing coverage and avofd a period of duplicate or missed coverage.

The IRS concluded that the individual policy was, in substance, an extension and continuation of the group-term coverage. In summary, the IRS stated, "[W]e conclude that the conversion feature of the group policy, which allowed the continuation of life insurance coverage without evidence of insurability, is a benefit or privilege of a continuing nature. Conversion is more like the continuation of insurance protection through the exercise of an option provided in the original contract than the purchase of a new policy providing insurance protection."

* Insurance policy distributed from corporation to irrevocable trust includible under Sec. 2035

In IRS Letter Ruling (TAM) 919.7007,[29] the decedent's revocable trust and a third party each owned 50% of the outstanding shares of a corporation. In October 1985, the two shareholders executed a buy-sell agreement providing for the purchase of either shareholder's stock in the event of death. The buy-sell agreement permitted the corporation to purchase life insurance on the lives of both shareholders. Paragraph 25 of the buy-sell agreement expressly authorized each shareholder, if living, to purchase any insurance policies held by the corporation on their respective lives if the corporation was sold or the buy-sell agreement was terminated. The purchase price was defined as cash surrender value plus accumulated dividends.

In 1987, the decedent learned that he had inoperable cancer and, shortly thereafter, created an irrevocable trust for the benefit of his children and former spouse. On Feb. 3, 1988, the two shareholders executed an amendment to the buy-sell agreement that provided that they would use their best efforts to sell the corporation and that the buy-sell agreement was terminated immediately. After signing the .agreement, the decedent executed a document that assigned all right, title and interest to the policy on his life to the irrevocable trust; three months later he died. The IRS ruled that the full amount of proceeds payable to the irrevocable trust was includible in the decedent's gross estate.

Critique: The IRS recognized that there was no attribution of incidents of ownership from the corporation to the decedent as a controlling shareholder within the meaning of Rev. Rul. 89,-141[30] and Regs. Sec. 20.2042-1[c][6] as neither shareholder held in excess of 50% of the outstanding shares. As such, the includibility of the proceeds was dependent on the application of Sec. 2035(d)(2). As noted previously, various cases have concluded that Sec. 2035(d)(2) will apply only when an insurance policy has been transferred from an insured within three years of his death and such decedent had possessed incidents of ownership within the meaning of Sec. 2042 at some time before the transfer. While the IRS expressly stated that it did not necessarily agree with the Headrick[31] line of cases, it did feel that the facts contained in Letter Ruling 9127007 were clearly consistent with Headrick, et al.

In this ruling, the IRS argued that the transfer of the policy from the corporation to the irrevocable trust could not legally have occurred without it passing through the decedent. In support of this argument, the IRS stated that the policy could be disgorged from the corporation in only two ways. First, it could be distributed to the decedent's revocable trust under the terms of the buy-sell agreement; or second, it could be distributed to the decedent's revocable trust as a distribution on stock.

Under the terms of the buy-sell agreement, the deeedent's revocable trust had a contractual right to obtain the insurance policy on his life either on sale of the corporation to a third party or termination of the buy-sell agreement. On Feb. 3, 1988, the buy-sell agreement was terminated and the decedent's rights to obtain the policy matured. The decedent formally executed a document directing the corporation to distribute the policy to the irrevocable trust established by his children. The IRS concluded that the corporation distributed the insurance policy to the irrevocable trust in satisfaction of an obligation owed the decedent's revocable trust under the buy-sell agreement. Planning hints: The adverse tax consequences of the transaction in Letter Ruling 9127007 arise directly from the fact that the decedent's revocable trust and, therefore, the decedent himself had the sole right to obtaIn the insurance policy held by the corporation. The corporation itself could not have made a gratuitous transfer of the policy to the irrevocable trust. A question exists whether a different estate tax result would have occurred had the buy-sell agreement provided/or a possible purchase of the Insurance policy by third parties. However, even though the estate tax consequences could possibly be avofded, it is possible that the insurance then held by the irrevocable trust (as a third-party purchaser) would be subject to Income tax under the purchase for value rule of Sec. 101[a][2].

Retained Interests

Recent developments relating to retained interests included the following.

* A spousal support statute resulted in estate inclusion of a trust with the grantor as cotrustee.

* A revocable trust created before March 1931 did not qualify for Sec. 2036(e1 transition relief.

* Distributions from a revocable trust to third parties were deemed partial revocations not subject to the three-year rule.

* Gift tax paid by a decedent-spouse on a split gift was includible in the gross estate.

* A decedent's estate included the entire value of a home even though a 5% interest purportedly was transferred for full consideration within three years of death.

* Statutory obligation to support spouse caused inclusion of trust in gross estate

In IRS Letter Ruling (TAM) 9122005,[32] the decedent executed an irrevocable inter vivos trust in 1967. Under the terms of the instrument, the entire net income was to be paid in quarterly or more frequent installments to the spouse for life and the trustees were authorized to distribute principal as they deemed necessary for her care, support, maintenance and health. The decedent named himself as a cotrustee. The IRS concluded that the entire trust was includible in the decedent's gross estate under Sec. 2036.

Critique: sec. 2036[a] requires that a decedent's gross estate include the value of any property that has been transferred subject to a retained right of possession or enjoyment. Regs. Sec. 20.2036-1(b)(2) defines a retained right of possession to include one under which income or other mounts may be applied toward the discharge of a legal obligation of the decedent.

The IRS noted that the applicable Minnesota law, as well as the law of most state jurisdictions, directs that a husband has an obligation to support his wife while they are married. Further, such obligation is determined with reference to the earnings ability and means of the husband, but is not discharged by virtue of destitution or absence of means.

The terms of the trust authorized the trustees to distribute principal to the decedent's spouse to provide for her care, support, maintenance and health. While the trustees had to take into consideration other means available to the spouse, there was nothing in the instrument that would prohibit the distribution of funds from the trust to satisfy or augment the decedent's statutory obligation of support. Citing McTighe[33] and Pardee,[34] the IRS asserted that the mere existence of the decedent's right (as a trustee) to use the property for his benefit was sufficient to cause inclusion of the trust under Sec. 2036[a].

Planning hints: This ruling is very troubling. As noted in the ruling, most, if not all, states impose an obligation on a husband for the support of his spouse. It can be anticipated that a number of inter vivos trust instruments currently exist authorizing discretionary distributions of principal or income to a spouse, based on what was otherwise thought of as an ascertainable standard and, therefore, outside the scope of Sec. 2041.

Taxpayers who have established such trusts and named themselves as trustee or cotrustee are now in significant peril. The principal focus when drafting a trust instrument naming a grantor as trustee has generally been the elimination of the possible application of the general power of appofntment rules and limiting discretionary distributions to an ascertainable standard, thereby avofding the Sec. 9.036 rules by excluding all "sprinkle and spray" powers in the trustee. in this case, a trust established for the benefit of a spouse, with mandatory income distributions during her life and principal distributions subject to an ascertainable standard exercisable by cotrustees, one of whom is the grantor, has been found includible in that grantor's estate.

* Revocable trust established before Mar. 4, 1931 was fully includible

In IRS Letter Ruling (TAM) 9140003[35] in March 1930, the decedent transferred property to a trust for her own benefit. The initial trustees were a corporate trustee and her husband. The decedent was named successor trustee on her husband's death. Under its terms, trust income was payable to the decedent for life and principal could be invaded for her maintenance, support and comfort in the discretion of her husband, acting as trustee.

On the decedent's death, income was payable to her husband for the remainder of his life, and discretionary distributions of principal could be made by the independent trustee under the same standard, provided the husband's income from the trust and other sources was insufficient to meet his needs. The decedent retained the right to modify or revoke the trust with her husband's consent. Various additional transfers of property were made to the trust. The IRS ruled that no portion of the trust was excludible from the decedent's gross estate under Sec. 2036(c).

Critique: Sec. 9.036(a) requires inclusion in the decedent's gross estate of the value of all property transferred with respect to which a retained right to possession or enjoyment exists. Sec. 2036(c) provides that Sec. 9.036 [a] will not apply to a transfer made before Mar. 4, 1931. At issue is whether the revocable trust established in March 1930, together with the assets transferred to that trust before Mar. 4, 1931, are excludible from the decedent's gross estate under Sec. 9.036(c).

The IRS has consistently argued that the Sec. 9.036(1) exception applies only to trusts that were irrevocable before Mar. 4, 1931?[36] However, several courts have concluded that Sec. 2036(c) applies to all transfers made be/ore Mar. 4, 1931, whether or not the transfer could be revoked by the grantor.[37] The IRS stated in this ruling that the trust would be includible in full in the grantor's gross estate, and not subject to the grandfather provisions of Sec. 2036(c), unless it was demonstrated that the trust was, in fact, irrevocable in March 1930.

The estate asserted that the trust should be deemed irrevocable before Mar. 4, 1931, since the decedent's ability to modify or revoke the instrument was subject to her husband's prior consent. Further, the estate asserted that the husband was an adverse party with respect to the trust, in light of his successor interest in the trust.

The IRS stated that the Talbott[38] decision clearly held that a trust subject to a power of revocation, that was conditioned on the prior consent of an adverse party, was not revocable for purposes of Sec. 2036[c]. However, the Talbott decision was reached with respect to a trust that was established before the enactment of Section 302[d] of eluded that the full amount of gift taxes paid was includible in the decedent's gross estate. Critique.' Sec. 2035[c] provides that the gross estate will be increased by the amount of any gift taxes paid by the decedent, or his estate, during a period ending within three years of death. In the case of a split gift, it is irrelevant whether the taxes paid by the decedent were those reflected on his Federal gift tax return, his spouse's Federal gift tax return, or both. While split gifts made by a husband and wife under Sec. 2513{a}{1} are treated as having been made one-half by each spouse, the liability with respect to the gift tax of each spouse for the calendar period is jofnt and several under Regs. Sec. 25.2502-2. planning hints: In Letter Ruling 9128009, the estate tax benefits associated with the payment of gift taxes was lost with respect to both spouses' tax liability. Exclusion of the spouse's gift tax liability could have been achieved had she paid her gift taxes from her own separate funds. In the alternative, the decedent could have made a transfer of cash to his spouse in an amount equal to the Federal gift tax, from which she would subsequently pay her own gift tax liability. The transfer of cash to the spouse would have been free of gift tax under the marital deduction, and her subsequent decision to use those funds to pay her tax liability should have resulted in an exclusion of those taxes from the decedent's gross estate.

* Entire value of personal residence included in gross estate even though 5% interest sold within three years of death

In IRS Letter Ruling (TAM) 9146002,[42] in 1987, the decedent's revocable trust, which owned a 100% interest in his personal residence, sold a 5% undivided interest in that residence to a second inter vivos trust created for the benefit of his children. The purchase price was equal to a 5% interest in the then fair market value (FMV) of the residence, less a 33 1/3% discount for marketability and minority interest. Concurrently, the revocable trust entered a five-year lease with the second trust, with rent determined as 5% of the estimated annual fair rental of the entire property. An additional five-year renewal term, exercisable by the revocable trust, was provided for in the instrument. At the time of the transaction, the decedent was 78 years old and had an actuarial life expectancy of seven years.

On the decedent's death in 1989, a 95% share of the personal residence was included in the Federal estate tax return at a value of $974,700. This value was based on an appraised value of $1.8 million for the entire residence, less the 5% interest and a marketability discount. The IRS concluded that the undiscounted FMV of the entire residence was includible in the decedent's gross estate under Sees. 2036 and 2035.

Critique: The IRS first noted that cases and revenue rulings have held that a transfer of a personal residence, subject to an understanding of continued occupancy by the transferor for a period measured by his remaining life, resulted in inclusion under Sec. 2036[a][1][43] Under such circumstances, the right of continued residence was equivalent to a retained power of enjoyment within the meaning of that statute. Such understandings need not be expressed in writing, but are demonstrable by facts and circumstances.

The taxpayer argued that since the lease was at FMV, Barlow" prevents Sec. 2036[a] application. The IRS dismissed the argument, saying that the personal nature of the residence in the instant case creates a "compelled inference" of agreed continued occupancy, which is distinguishable from the business property in Barlow.

The estate asserted that the 5% conveyance actually resulted in an almost 40% reduction in the value of the 95% interest retained by the trust. Based on the estate's assertion of value, the IRS concluded that the 5% sale resulted in a conveyance of substantially more value than was reflected in the purchase price charged to the second trust. Relying on Sec. 2038[a][1], the IRS asserted that

the decedent had acquiesced in a relinquishment of over $700,000 of value from the trust corpus by participating in the sale of the proportionate interest. Since the decedent died within three years of this relinquishment, Sec. 2035 operates to include the 5% interest in his estate, less an offset for the amount of cash paid for it. The IRS cited Rev. Rul. 79-7[45] as authority to treat the 95% owned and the 5% deemed owned interests as one, thereby eliminating any minority and marketability discounts. Planning hints: The IRS obviously was troubled by the "disappearance" of about 40% of value as a result of a sale of an undivided 5% interest in an asset. Since valuation is a factual issue, the IRS National Office did not directly address it in this technical advice memorandum.

The merits of the IRS's Sec. 2036[a] inclusion argument are debatable. The taxpayer could have asserted that Sec. 2036[a] did not apply simply because the 5% interest was transferred in a bona fide sale for full consideration. The IRS did not directly address this pofnt in the Sec. 2036(a) discussion. However, the authors would question an attempt to attach the 95% interest's "disappearing" value to the 5% interest, thereby increasing the amount necessary to sell the 5% interest for full consideration.

Even if the 5% interest was not transferred in a bona fide sale for full consideration, the question remains as to whether a leaseback under arm's-length terms is a retained use right. The facts in this ruling are not persuasive for the taxpayer, given a lease term beyond life expectancy with no provisions for rental increases [for five years] or a security deposit. However, the IRS's argument seems to rest on a somewhat arbitrary view of Barlow. That ease involved farm land in a simultaneous gift and leaseback arrangement and expressly concluded that such an arrangement does not constitute a retained use under See. 2036[a]. The IRS simply concluded that Barlow could be distinguished because it involved business property, rather than a personal residence.

The second estate inclusion argument follows the IRS's current strict reading of Sees. 2035 and 2038, namely, that a transfer from a revocable trust generally is a relinquishment of a Sec. 2038 revocation right. Death within three years of a relinquishment results in Sec. 2035 inclusion. However, to apply this position, the IRS needed to find a transfer from the revocable trust for less than full consideration,

The IRS noted (probably correctly) that the revocable trust's fiduciary could have been surcharged for selling a 5% interest with a resulting 40% diminution of value in the retained share of trust corpus. Since the decedent did not pursue the fiduciary, he must have consented to a transfer of value. The IRS viewed that transfer as a relinquishment of a Sec. 2038 power.

Once again, the "disappearing" value question arises. Can Secs, 2035 and 2038 apply merely because the sale of a property interest/or its/air value causes a diminution in value of a retained interest in the same property? Note that this Sec. 2035/2038 inclusion argument could have been a vofded in its entirety if the revocable trust had not been involved.

[1] IRS Letter Ruling 9118010 [12/24/90].

[2] IRS Letter Ruling (TAM) 9127008 (no date given).

[3] Arnold Van Den Wymelenberg, 397 F2d 443 (7th Cir. 1968)(22 AFTR2d 6008, 68-2 USTC [PARAGRAPH]12,5371, cert. denied; Era Davis Harris, 461 F2d 554 [5th Cir. 1972)(29 AFTR2d 72-1587, 72-1 USTC [PARAGRAPH]12,853), Peter Sinopoulo, 154 F2d 648 [10th Cir. 1946)(34 AFTR 1124, 46-1 USTC [PARAGRAPH]9220} M.T. Straight Trust, 245 F2d 327 (8th Cir. 1957)(51 AFTR 552, 57-2 USTC [paragraph]9727), Gerard PieI, 340 F2d 887 (2d Cir. 1965 15 AFTR2d 254, 65-1 USTC [paragraph]91991, emerson Institute, 356 F2d 89.4 (D.C. Cir. 1966 17 AFTR2d 362, 661 USTC [PARAGRAPH]9227), cert. denied.

[4] Est. of 1oseph A. Vak, TC Memo 1991-503.

[5] Mary Ann Heyen, 945 F2d 359 [10th Cir. 1991}{68 AFTR2d 916044, 91-2 USTC [paragraph]60,0851.

[6] Irwin S. Chanin, 393 F2d 972 (Ct. el. 19681121 AFTR2d 1643, 68-1 USTC 12,522L

[7] Donald W. rose, 284 F2d 65 {Ist Cir. 1960}17 AFTR2d 1693, 602 USTC [paragraph]11,979L

[8] Lynette Harris, 942 F2d 1125 [7th Cir. 1991]]68 AFTR2d 91-5482, 91-2 USTC [paragraph]50,4331.

[9] Mose Duberstein, 363 US 278 [1960][5] AFTR2d 1626, 60-9. USTC [paragraph]95151.

[10] Harris,s, note 8, at 91-2 USTC 89,581.

[11] Byrnece S. Green, TC Memo 1987-503, Lillian Reis, TC Memo 1974-287; Louis B. Libby, TC Memo 1969-184.

[12] IRS Letter Ruling [TAM] 9127005 [3/22/91].

[13] IRS Letter Ruling 9135043 (6/3/91].

[14] Mass. G.L. Ch. 191A, Section 2.

[15] Gladys L. McDonald, 853 F2d 1494 (8th Cir. 1988)(62 AFTR2d 88-5995, 88-2 USTC [paragraph]13,778). The IRS also cited Pearl M. Kennedy, 804 F2d 1332 (7th Cir. 1986)159 AFTR2d 87-1191, 86-2 USTC [paragraph]13,699); Est. of Josephine O'Meara Dancy, 872 F2d 84 (4th Cir. 1989)(63 AFTR2d 89-1560, 89-1 USTC [paragraph]13,800J.

[16] IRS Letter Ruling 9135044 16/3/91 ).

[17] IRS Letter Ruling (TAM) 9140005 (6/25/91).

[18] IRS Letter Ruling (TAM) 9123003 {2/14/91).

[19] IRS Letter Ruling 9141017 (7/10/91}.

[20] IRS Letter Ruling 9128008 [3/29/91].

[21] Est. of Morris R. Silverman, 521 F2d 574 [2d Cir. 1975][36 AFTR2d 75-6456,75-2 USTC [PARAGRAPH]13,884].

[22] Est of Eddie L. Headrick 918 F2d 1263 6th Cir. 1990)(66 AFTR2d 90-6038 90-2 USTC [paragraph]60,049L aff'g 93 TC 171 (1989).

See also IRS Letter Ruling 9113027 (no date given).

[23] Daisy Miller Boyd Bel (exrx. under Last Will and Testament of John Albert Bel), 452 F2d 683 (5th Cir. 1971)(29) AFTR2d 721482, 72-1 USTC [paragraph]12,818L air'g, rev'g and rem'g 310 F Supp 1189 (W,D. La. 1970)25 AFTR2d 70-1557, 70-1 USTC [paragraph]12,670).

[24] IRS Letter Ruling 9204041 (10/29/91].

[25] Rev. Rul. 82-145, 1982-2 CB 213.

[2] 6Rev. Rul. 76-274, 1976-2 CB 278.

[27] IRS Letter Ruling (TAM) 9141007 (6/19/91).

[28] Est. of Frank Martin Perry, St,, 927 F2d 209 {Sth Cir. 1991){67 AFTR2d 91-1200, 91-1 USTC [PARAGRAPH]60,064); Est. of Headrick, note 22; Est. of Joseph Leder, 893 F2d 237 (10th CIR. 1989)(65 AFTR2d 90-1173, 90-1 USTC [PARAGRAPH[60,001].

[29] IRS Letter Ruling (TAM)9127007 [3/26/91).

[30] Rev. Rul. 82-141, 1982-2 CB 209, as amplified by Rev. Rul. 9021, 1990-1 CB 172.

[31] Est. of Headrick, note 22.

[32] IRS Letter Ruling (TAM) 9122005 (2/27191).

[33] Est. of Frederick J. McTighe, TC Memo 1977-410.

[34] EST.of Marvin L. Pardee, 49 TC 140 (1967).

[35] IRS Letter Ruling {TAM} 9140003 (6/19/91).

[36] Rev. Rul. 277, 1953-2 CB 265.

[37] Est. Ellie G. Canfield, 306 F2d 1 (2d Cir. 1962){10 AFFR2d 6170, 62-2 USTC [paragraph]12,083), Est. of Ellis Branson Ridgway, 291 F2d 257 (3d Cir. 1961117 AFTP2d 1837, 61-1 USTC [paragraph]12,020].

[38] Est. of Eleanor Buchanan Talbott, 403 F2d 851 [4th Cir. 1968J122 AFTP2d 6097, 68-2 USTC [paragraph]12,559], cert. denied.

[39] IRS Letter Ruling (TAM) 9141005 (7/5/91).

[40] IRS Letter Ruling (TAM)9139002 (6/14/91); Est. of Katherne H. Perkins ,N.D. Ohio, 1990 (90-2 USTC [paragraph]60,042). See the discussion in Abbin, Carlson and Nager, "Significant Recent Developments in Estate Planning (Part I)," 22 The Tax Adviser 590 (September 1991), at 594.

[41] IRS Letter Ruling (TAM) 9128009 (3/29/91).

[42] IRS Letter Ruling (TAM) 9146002 (7/31/911.

[43] Est. of Emil Linderme, 52 TC 305 {1969}; Rev. Rul. 70-155, 19701 CB 189.

[44] Est. of Roy D. Barlow, 55 TC 666 (1971).

[45] Rev. Rul. 79-7, 1979-1 CB 294.

Byrle M. Abbin, CPA Partner Arthur Andersen & Co. Washington, D.C.

David K. Carlson, CPA Partner Arthur Andersen & Co. Sarasota, Fla.

Ross-W. Nager, CPA Partner Arthur Andersen & Co. Houston, Tex.
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Title Annotation:part 1
Author:Nager, Ross W.
Publication:The Tax Adviser
Date:Oct 1, 1992
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