Transfers with Retained Interest and Continued Enjoyment Included in Taxable Estate

In a recent Tax Court case, the court held that the gross estate included the value of assets which a deceased health care company CFO transferred inter vivos through trust to, and were held by, a family limited partnership on the date of death.  See Estate of Beyer, T.C. Memo 2016-183. There, the decedent had transferred extensive stockholdings asserting that this constituted a qualified bona fide sale for adequate consideration under Section 2036.

In general, Section 2036 requires the inclusion of property in the gross estate where the decedent has transferred property but retained: (1) the right to income from the property transferred; (2) the possession or enjoyment of the property; or (3) the right, either alone or in conjunction with any person, to designate the individuals who shall possess or enjoy the property or income therefrom. In other words, where an individual transfers property but retains certain “strings,” the property is included in their estate.  In rendering its decision, the court found that the taxpayer could not establish that the decedent received adequate and full consideration in money or money’s worth regarding the transfer.  Likewise, the taxpayer failed to show that there was no implied agreement to retain possession or enjoyment of, or right to income from, those assets under Section 2036.  Rather, the record reflected that the decedent continued to use the subject assets after the transfer and did not retain sufficient assets outside of the family limited trust to pay their anticipated financial obligations. In light of this, the court concluded that the assets should be included in the decedent’s estate.

For more information or if you have any questions about estate planning and taxation, please contact Judson M. Stein, Esq., Chair of the Trusts & Estates Practice Group, at 973-230-2080 or jstein@genovaburns.com or John A. Grey, Esq. and Lauren M. Ahern, Esq., Associates in the Trusts & Estates Practice Group.