Taxation of Estates and Gifts

Revocable Transfer

A decedent's gross estate includes any property given away but still subject to the decedent's power to alter, amend, revoke, or terminate. 26 U.S.C. § 2038.

This amount must be discounted to the amount of time after decedent's death that it will be until the remainder transfers by multiplying it by the corresponding "remainder" value in 26 U.S.C. § 7520 Table S or B.

Immaterial

A condition being immaterial means that the condition does not matter. The result is the same whether the condition is present or not.

Immaterial Table
Condition Immaterial under Section 2036 Immaterial under Section 2038
Joint Power, i.e., act of D and another person is necessary to exercise the power ✔ 26 CFR § 20.2036-1(b)(3) text(i) ✔ 26 CFR § 20.2038-1(a)
Capacity, i.e., D holds power as a fiduciary, like a trustee ✔ 26 CFR § 20.2036-1(b)(3) text(ii) ✔ 26 CFR § 20.2038-1(a)
Contingency beyond D’s control is condition precedent to D’s having the power ✔ 26 CFR § 20.2036-1(b)(3) text(iii) ❌ 26 CFR § 20.2038-1(b)
Contingency within D’s control is condition precedent to D’s having the power ✔ Implied from 26 CFR § 20.2036-1(b)(3) text(iii) ✔ Implied from 26 CFR § 20.2038-1(b)
Power relates only to time and manner of enjoyment, e.g. income and remainder beneficiary is the same person ❌ Implied from 26 CFR § 20.2036-1(b)(3) text(iii) ✔

Money may be included in both §§ 2036 & 2038, so just pick the larger of the two values.

There is, in fact, significant overlap between § 2036 and § 2038. If a decedent retains the right to designate who gets the income generally, usually both with apply (and 2036 will be the one that matters). However, if the decedent only has the power to change who gets the income after he dies, it only falls under § 2038, not § 2036, and they therefore get the discounting. (Which makes sense. You only are taxed on the remainder because all you can control is the remainder.)

  • This is not the case if it's the remainder after someone else dies—then it all is included under § 2036.
    • Unless the other actually dies first, then I think nothing's included.