SECTION 2-205. DECEDENT’S NONPROBATE TRANSFERS TO OTHERS. Uniform Probate Code
The value of the augmented estate includes the value of the decedent’s nonprobate transfers to others, not included under Section 2-204, of any of the following types, in the amount provided respectively for each type of transfer:
(1) Property owned or owned in substance by the decedent immediately before death that passed outside probate at the decedent’s death. Property included under this category consists of:
(A) Property over which the decedent alone, immediately before death, held a presently exercisable general power of appointment. The amount included is the value of the property subject to the power, to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(B) The decedent’s fractional interest in property held by the decedent in joint tenancy with the right of survivorship. The amount included is the value of the decedent’s fractional interest, to the extent the fractional interest passed by right of survivorship at the decedent’s death to a surviving joint tenant other than the decedent’s surviving spouse.
(C) The decedent’s ownership interest in property or accounts held in POD, TOD, or co-ownership registration with the right of survivorship. The amount included is the value of the decedent’s ownership interest, to the extent the decedent’s ownership interest passed at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(D) Proceeds of insurance, including accidental death benefits, on the life of the
The value of the augmented estate includes the value of the decedent’s nonprobate transfers to others, not included under Section 2-204, of any of the following types, in the amount provided respectively for each type of transfer:
(1) Property owned or owned in substance by the decedent immediately before death that passed outside probate at the decedent’s death. Property included under this category consists of:
(A) Property over which the decedent alone, immediately before death, held a presently exercisable general power of appointment. The amount included is the value of the property subject to the power, to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(B) The decedent’s fractional interest in property held by the decedent in joint tenancy with the right of survivorship. The amount included is the value of the decedent’s fractional interest, to the extent the fractional interest passed by right of survivorship at the decedent’s death to a surviving joint tenant other than the decedent’s surviving spouse.
(C) The decedent’s ownership interest in property or accounts held in POD, TOD, or co-ownership registration with the right of survivorship. The amount included is the value of the decedent’s ownership interest, to the extent the decedent’s ownership interest passed at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(D) Proceeds of insurance, including accidental death benefits, on the life of the
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decedent, if the decedent owned the insurance policy immediately before death or if and to the
extent the decedent alone and immediately before death held a presently exercisable general
power of appointment over the policy or its proceeds. The amount included is the value of the
proceeds, to the extent they were payable at the decedent’s death to or for the benefit of any
person other than the decedent’s estate or surviving spouse.
(2) Property transferred in any of the following forms by the decedent during marriage: (A) Any irrevocable transfer in which the decedent retained the right to the
possession or enjoyment of, or to the income from, the property if and to the extent the decedent’s right terminated at or continued beyond the decedent’s death. The amount included is the value of the fraction of the property to which the decedent’s right related, to the extent the fraction of the property passed outside probate to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(B) Any transfer in which the decedent created a power over income or property, exercisable by the decedent alone or in conjunction with any other person, or exercisable by a nonadverse party, to or for the benefit of the decedent, creditors of the decedent, the decedent’s estate, or creditors of the decedent’s estate. The amount included with respect to a power over property is the value of the property subject to the power, and the amount included with respect to a power over income is the value of the property that produces or produced the income, to the extent the power in either case was exercisable at the decedent’s death to or for the benefit of any person other than the decedent’s surviving spouse or to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse. If the power is a power over both income and property and the preceding sentence produces different amounts, the amount
(2) Property transferred in any of the following forms by the decedent during marriage: (A) Any irrevocable transfer in which the decedent retained the right to the
possession or enjoyment of, or to the income from, the property if and to the extent the decedent’s right terminated at or continued beyond the decedent’s death. The amount included is the value of the fraction of the property to which the decedent’s right related, to the extent the fraction of the property passed outside probate to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(B) Any transfer in which the decedent created a power over income or property, exercisable by the decedent alone or in conjunction with any other person, or exercisable by a nonadverse party, to or for the benefit of the decedent, creditors of the decedent, the decedent’s estate, or creditors of the decedent’s estate. The amount included with respect to a power over property is the value of the property subject to the power, and the amount included with respect to a power over income is the value of the property that produces or produced the income, to the extent the power in either case was exercisable at the decedent’s death to or for the benefit of any person other than the decedent’s surviving spouse or to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse. If the power is a power over both income and property and the preceding sentence produces different amounts, the amount
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included is the greater amount.
(3) Property that passed during marriage and during the two-year period next preceding
the decedent’s death as a result of a transfer by the decedent if the transfer was of any of the following types:
(A) Any property that passed as a result of the termination of a right or interest in, or power over, property that would have been included in the augmented estate under paragraph (1) (A), (B), or (C), or under paragraph (2), if the right, interest, or power had not terminated until the decedent’s death. The amount included is the value of the property that would have been included under those paragraphs if the property were valued at the time the right, interest, or power terminated, and is included only to the extent the property passed upon termination to or for the benefit of any person other than the decedent or the decedent’s estate, spouse, or surviving spouse. As used in this subparagraph, “termination,” with respect to a right or interest in property, occurs when the right or interest terminated by the terms of the governing instrument or the decedent transferred or relinquished the right or interest, and, with respect to a power over property, occurs when the power terminated by exercise, release, lapse, default, or otherwise, but, with respect to a power described in paragraph (1)(A), “termination” occurs when the power terminated by exercise or release, but not otherwise.
(B) Any transfer of or relating to an insurance policy on the life of the decedent if the proceeds would have been included in the augmented estate under paragraph (1)(D) had the transfer not occurred. The amount included is the value of the insurance proceeds to the extent the proceeds were payable at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(C) Any transfer of property, to the extent not otherwise included in the
(3) Property that passed during marriage and during the two-year period next preceding
the decedent’s death as a result of a transfer by the decedent if the transfer was of any of the following types:
(A) Any property that passed as a result of the termination of a right or interest in, or power over, property that would have been included in the augmented estate under paragraph (1) (A), (B), or (C), or under paragraph (2), if the right, interest, or power had not terminated until the decedent’s death. The amount included is the value of the property that would have been included under those paragraphs if the property were valued at the time the right, interest, or power terminated, and is included only to the extent the property passed upon termination to or for the benefit of any person other than the decedent or the decedent’s estate, spouse, or surviving spouse. As used in this subparagraph, “termination,” with respect to a right or interest in property, occurs when the right or interest terminated by the terms of the governing instrument or the decedent transferred or relinquished the right or interest, and, with respect to a power over property, occurs when the power terminated by exercise, release, lapse, default, or otherwise, but, with respect to a power described in paragraph (1)(A), “termination” occurs when the power terminated by exercise or release, but not otherwise.
(B) Any transfer of or relating to an insurance policy on the life of the decedent if the proceeds would have been included in the augmented estate under paragraph (1)(D) had the transfer not occurred. The amount included is the value of the insurance proceeds to the extent the proceeds were payable at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(C) Any transfer of property, to the extent not otherwise included in the
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augmented estate, made to or for the benefit of a person other than the decedent’s surviving
spouse. The amount included is the value of the transferred property to the extent the transfers to
any one donee in either of the two years exceeded [$12,000] [the amount excludable from
taxable gifts under 26 U.S.C. Section 2503(b) [or its successor] on the date next preceding the
date of the decedent’s death].
Legislative Note: In paragraph (3)(C), use the first alternative in the brackets if the second alternative is considered an unlawful delegation of legislative power.
Comment
This section, which in the 1990 version appeared in substance as a paragraph of a single, long section defining the augmented estate, establishes as the second component of the augmented estate the value of the decedent’s nonprobate transfers to others. In the 1990 version, the term “reclaimable estate” was used rather than the term “nonprobate transfers to others”.
This component is divided into three basic categories: (1) property owned or owned in substance by the decedent immediately before death that passed outside probate to persons other than the surviving spouse; (2) property transferred by the decedent during marriage that passed outside probate to persons other than the surviving spouse; and (3) property transferred by the decedent during marriage and during the two-year period next preceding the decedent’s death. Various aspects of each category and each subdivision within each category are discussed and illustrated below.
Paragraph (1) – Property Owned or Owned in Substance by the Decedent. This category covers property that the decedent owned or owned in substance immediately before death and that passed outside probate at the decedent’s death to a person or persons other than the surviving spouse. Property owned by the decedent’s surviving spouse does not include the value of enhancements to the surviving spouse’s earning capacity (e.g., the value of a law, medical, or business degree).
Paragraph (1) subdivides this category into four specific components:
(A) Property over which the decedent alone, immediately before death, held a presently exercisable general power of appointment. The amount included is the value of the property subject to the power, to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse;
(B) The decedent’s fractional interest in property held by the decedent in joint tenancy with the right of survivorship. The amount included is the value of the decedent’s fractional interest, to the extent the fractional interest passed by right of survivorship at the decedent’s
Legislative Note: In paragraph (3)(C), use the first alternative in the brackets if the second alternative is considered an unlawful delegation of legislative power.
Comment
This section, which in the 1990 version appeared in substance as a paragraph of a single, long section defining the augmented estate, establishes as the second component of the augmented estate the value of the decedent’s nonprobate transfers to others. In the 1990 version, the term “reclaimable estate” was used rather than the term “nonprobate transfers to others”.
This component is divided into three basic categories: (1) property owned or owned in substance by the decedent immediately before death that passed outside probate to persons other than the surviving spouse; (2) property transferred by the decedent during marriage that passed outside probate to persons other than the surviving spouse; and (3) property transferred by the decedent during marriage and during the two-year period next preceding the decedent’s death. Various aspects of each category and each subdivision within each category are discussed and illustrated below.
Paragraph (1) – Property Owned or Owned in Substance by the Decedent. This category covers property that the decedent owned or owned in substance immediately before death and that passed outside probate at the decedent’s death to a person or persons other than the surviving spouse. Property owned by the decedent’s surviving spouse does not include the value of enhancements to the surviving spouse’s earning capacity (e.g., the value of a law, medical, or business degree).
Paragraph (1) subdivides this category into four specific components:
(A) Property over which the decedent alone, immediately before death, held a presently exercisable general power of appointment. The amount included is the value of the property subject to the power, to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse;
(B) The decedent’s fractional interest in property held by the decedent in joint tenancy with the right of survivorship. The amount included is the value of the decedent’s fractional interest, to the extent the fractional interest passed by right of survivorship at the decedent’s
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death to a surviving joint tenant other than the decedent’s surviving spouse.
(C) The decedent’s ownership interest in property or accounts held in POD, TOD, or co- ownership registration with the right of survivorship. The amount included is the value of the decedent’s ownership interest, to the extent the decedent’s ownership interest passed at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(D) Proceeds of insurance, including accidental death benefits, on the life of the decedent, if the decedent owned the insurance policy immediately before death or if and to the extent the decedent alone and immediately before death held a presently exercisable general power of appointment over the policy or its proceeds. The amount included is the value of the proceeds, to the extent they were payable at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
With one exception for nonseverable joint tenancies (see Example 4 below), each of the above components covers a type of asset of which the decedent could have become the full, technical owner by merely exercising his or her power of appointment, incident of ownership, or right of severance or withdrawal. Had the decedent exercised these powers or rights to become the full, technical owner, the decedent could have controlled the devolution of these assets by his or her will; by not exercising these powers or rights, the decedent allowed the assets to pass outside probate to persons other than the surviving spouse. Thus, in effect, property covered by these components passes at the decedent’s death by nonprobate transfer from the decedent to others. This is what justifies including these components in the augmented estate without regard to the person who created the decedent’s substantive ownership interest, whether the decedent or someone else, and without regard to when it was created, whether before or after the decedent’s marriage.
Although the augmented estate under the pre-1990 Code did not include life insurance, annuities, etc., payable to other persons, the revisions do include their value; this move recognizes that such arrangements were, under the pre-1990 Code, used to deplete the estate and reduce the spouse’s elective-share entitlement.
Various aspects of paragraph (1) are illustrated by the following examples. Other examples illustrating various aspects of this paragraph are Example 19 in this Comment, below, and Examples 20 and 21 in the Comment to Section 2-206, below. In each of the following examples, G is the decedent and S is the decedent’s surviving spouse.
Example 1 – General Testamentary Power. G’s mother, M, created a testamentary trust, providing for the income to go to G for life, remainder in corpus to such persons, including G, G’s creditors, G’s estate, or the creditors of G’s estate, as G by will appoints; in default of appointment, to X. G died, survived by S and X. G’s will did not exercise his power in favor of S.
The value of the corpus of the trust at G’s death is not included in the augmented estate under paragraph (1)(A), regardless of whether G exercised the power in favor of someone other
(C) The decedent’s ownership interest in property or accounts held in POD, TOD, or co- ownership registration with the right of survivorship. The amount included is the value of the decedent’s ownership interest, to the extent the decedent’s ownership interest passed at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(D) Proceeds of insurance, including accidental death benefits, on the life of the decedent, if the decedent owned the insurance policy immediately before death or if and to the extent the decedent alone and immediately before death held a presently exercisable general power of appointment over the policy or its proceeds. The amount included is the value of the proceeds, to the extent they were payable at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
With one exception for nonseverable joint tenancies (see Example 4 below), each of the above components covers a type of asset of which the decedent could have become the full, technical owner by merely exercising his or her power of appointment, incident of ownership, or right of severance or withdrawal. Had the decedent exercised these powers or rights to become the full, technical owner, the decedent could have controlled the devolution of these assets by his or her will; by not exercising these powers or rights, the decedent allowed the assets to pass outside probate to persons other than the surviving spouse. Thus, in effect, property covered by these components passes at the decedent’s death by nonprobate transfer from the decedent to others. This is what justifies including these components in the augmented estate without regard to the person who created the decedent’s substantive ownership interest, whether the decedent or someone else, and without regard to when it was created, whether before or after the decedent’s marriage.
Although the augmented estate under the pre-1990 Code did not include life insurance, annuities, etc., payable to other persons, the revisions do include their value; this move recognizes that such arrangements were, under the pre-1990 Code, used to deplete the estate and reduce the spouse’s elective-share entitlement.
Various aspects of paragraph (1) are illustrated by the following examples. Other examples illustrating various aspects of this paragraph are Example 19 in this Comment, below, and Examples 20 and 21 in the Comment to Section 2-206, below. In each of the following examples, G is the decedent and S is the decedent’s surviving spouse.
Example 1 – General Testamentary Power. G’s mother, M, created a testamentary trust, providing for the income to go to G for life, remainder in corpus to such persons, including G, G’s creditors, G’s estate, or the creditors of G’s estate, as G by will appoints; in default of appointment, to X. G died, survived by S and X. G’s will did not exercise his power in favor of S.
The value of the corpus of the trust at G’s death is not included in the augmented estate under paragraph (1)(A), regardless of whether G exercised the power in favor of someone other
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than S or let the power lapse, so that the trust corpus passed in default of appointment to X.
Section 2-205(1)(A) only applies to presently exercisable general powers; G’s power was a
general testamentary power. (Note that paragraph (2)(B) does cover property subject to a
general testamentary power, but only if the power was created by G during marriage. G’s
general testamentary power was created by M and hence not covered by paragraph (2)(B).)
Example 2 – Nongeneral Power and “5-and-5” Power. G’s father, F, created a testamentary trust, providing for the income to go to G for life, remainder in corpus to such persons, except G, G’s creditors, G’s estate, or the creditors of G’s estate, as G by will appoints; in default of appointment, to X. G was also given a noncumulative annual power to withdraw an amount equal to the greater of $5,000 or five percent of the trust corpus. G died, survived by S and X. G did not exercise her power in favor of S.
G’s power over the remainder interest does not cause inclusion of the value of the full corpus in the augmented estate under paragraph (1)(A) because that power was a nongeneral power.
The value of the greater of $5,000 or five percent of the corpus of the trust at G’s death is included in the augmented estate under paragraph (1)(A), to the extent that that property passed at G’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse, because that portion of the trust corpus was subject to a presently exercisable general power of appointment held by G immediately before G’s death. No additional amount is included, however, whether G exercised the withdrawal power or allowed it to lapse in the years prior to G’s death. (Note that paragraph (3)(i) is inapplicable to this case. That paragraph only applies to property subject to powers created by the decedent during marriage that lapse within the two-year period next preceding the decedent’s death.)
Example 3 – Revocable Inter-Vivos Trust. G created a revocable inter-vivos trust, providing for the income to go to G for life, remainder in corpus to such persons, except G, G’s creditors, G’s estate, or the creditors of G’s estate, as G by will appoints; in default of appointment, to X. G died, survived by S and X. G never exercised his power to revoke, and the corpus of the trust passed at G’s death to X.
Regardless of whether G created the trust before or after marrying S, the value of the corpus of the trust at G’s death is included in the augmented estate under paragraph (1)(A) because, immediately before G’s death, the trust corpus was subject to a presently exercisable general power of appointment (the power to revoke: see Section 2-201(6)) held by G.
(Note that if G created the trust during marriage, paragraph (2)(B) also requires inclusion of the value of the trust corpus. Because these two subparagraphs overlap, and because both subparagraphs include the same value, Section 2-208(c) provides that the value of the trust corpus is included under one but not both subparagraphs.)
Example 4 – Joint Tenancy. G, X, and Y owned property in joint tenancy. G died, survived by S, X, and Y.
Example 2 – Nongeneral Power and “5-and-5” Power. G’s father, F, created a testamentary trust, providing for the income to go to G for life, remainder in corpus to such persons, except G, G’s creditors, G’s estate, or the creditors of G’s estate, as G by will appoints; in default of appointment, to X. G was also given a noncumulative annual power to withdraw an amount equal to the greater of $5,000 or five percent of the trust corpus. G died, survived by S and X. G did not exercise her power in favor of S.
G’s power over the remainder interest does not cause inclusion of the value of the full corpus in the augmented estate under paragraph (1)(A) because that power was a nongeneral power.
The value of the greater of $5,000 or five percent of the corpus of the trust at G’s death is included in the augmented estate under paragraph (1)(A), to the extent that that property passed at G’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse, because that portion of the trust corpus was subject to a presently exercisable general power of appointment held by G immediately before G’s death. No additional amount is included, however, whether G exercised the withdrawal power or allowed it to lapse in the years prior to G’s death. (Note that paragraph (3)(i) is inapplicable to this case. That paragraph only applies to property subject to powers created by the decedent during marriage that lapse within the two-year period next preceding the decedent’s death.)
Example 3 – Revocable Inter-Vivos Trust. G created a revocable inter-vivos trust, providing for the income to go to G for life, remainder in corpus to such persons, except G, G’s creditors, G’s estate, or the creditors of G’s estate, as G by will appoints; in default of appointment, to X. G died, survived by S and X. G never exercised his power to revoke, and the corpus of the trust passed at G’s death to X.
Regardless of whether G created the trust before or after marrying S, the value of the corpus of the trust at G’s death is included in the augmented estate under paragraph (1)(A) because, immediately before G’s death, the trust corpus was subject to a presently exercisable general power of appointment (the power to revoke: see Section 2-201(6)) held by G.
(Note that if G created the trust during marriage, paragraph (2)(B) also requires inclusion of the value of the trust corpus. Because these two subparagraphs overlap, and because both subparagraphs include the same value, Section 2-208(c) provides that the value of the trust corpus is included under one but not both subparagraphs.)
Example 4 – Joint Tenancy. G, X, and Y owned property in joint tenancy. G died, survived by S, X, and Y.
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Because G’s fractional interest in the property immediately before death was one-third,
and because that one-third fractional interest passed by right of survivorship to X and Y at G’s
death, one-third of the value of the property at G’s death is included in the augmented estate
under paragraph (1)(B). This is the result whether or not under local law G had the unilateral
right to sever her fractional interest. See Section 2-201(2).
Example 5 – TOD Registered Securities and POD Account. G registered securities that G owned in TOD form. G also contributed all the funds in a savings account that G registered in POD form. X was designated to take the securities and Y was designated to take the savings account on G’s death. G died, survived by S, X, and Y.
Because G was the sole owner of the securities immediately before death (see Sections 6- 302 and 6-306), and because ownership of the securities passed to X upon G’s death (see Section 6-307), the full value of the securities at G’s death is included in the augmented estate under paragraph (1)(C). Because G contributed all the funds in the savings account, G’s ownership interest in the savings account immediately before death was 100 percent (see Section 6-211). Because that 100 percentage ownership interest passed by right of survivorship to Y at G’s death, the full value of the account at G’s death is included in the augmented estate under paragraph (1)(C).
Example 6 – Joint Checking Account. G, X, and Y were registered as co-owners of a joint checking account. G contributed 75 percent of the funds in the account. G died, survived by S, X, and Y.
G’s ownership interest in the account immediately before death, determined under Section 6-211, was 75 percent of the account. Because that percentage ownership interest passed by right of survivorship to X and Y at G’s death, 75 percent of the value of the account at G’s death is included in the augmented estate under paragraph (1)(C).
Example 7 – Joint Checking Account. G’s mother, M, added G’s name to her checking account so that G could pay her bills for her. M contributed all the funds in the account. The account was registered in co-ownership form with right of survivorship. G died, survived by S and M.
Because G had contributed none of his own funds to the account, G’s ownership interest in the account immediately before death, determined under Section 6-211, was zero. Consequently, no part of the value of the account at G’s death is included in the augmented estate under paragraph (1)(C).
Example 8 – Life Insurance. G, as owner of a life-insurance policy insuring her life, designated X and Y as the beneficiaries of that policy. G died owning the policy, survived by S, X, and Y.
The full value of the proceeds of that policy is included in the augmented estate under paragraph (1)(D).
Example 5 – TOD Registered Securities and POD Account. G registered securities that G owned in TOD form. G also contributed all the funds in a savings account that G registered in POD form. X was designated to take the securities and Y was designated to take the savings account on G’s death. G died, survived by S, X, and Y.
Because G was the sole owner of the securities immediately before death (see Sections 6- 302 and 6-306), and because ownership of the securities passed to X upon G’s death (see Section 6-307), the full value of the securities at G’s death is included in the augmented estate under paragraph (1)(C). Because G contributed all the funds in the savings account, G’s ownership interest in the savings account immediately before death was 100 percent (see Section 6-211). Because that 100 percentage ownership interest passed by right of survivorship to Y at G’s death, the full value of the account at G’s death is included in the augmented estate under paragraph (1)(C).
Example 6 – Joint Checking Account. G, X, and Y were registered as co-owners of a joint checking account. G contributed 75 percent of the funds in the account. G died, survived by S, X, and Y.
G’s ownership interest in the account immediately before death, determined under Section 6-211, was 75 percent of the account. Because that percentage ownership interest passed by right of survivorship to X and Y at G’s death, 75 percent of the value of the account at G’s death is included in the augmented estate under paragraph (1)(C).
Example 7 – Joint Checking Account. G’s mother, M, added G’s name to her checking account so that G could pay her bills for her. M contributed all the funds in the account. The account was registered in co-ownership form with right of survivorship. G died, survived by S and M.
Because G had contributed none of his own funds to the account, G’s ownership interest in the account immediately before death, determined under Section 6-211, was zero. Consequently, no part of the value of the account at G’s death is included in the augmented estate under paragraph (1)(C).
Example 8 – Life Insurance. G, as owner of a life-insurance policy insuring her life, designated X and Y as the beneficiaries of that policy. G died owning the policy, survived by S, X, and Y.
The full value of the proceeds of that policy is included in the augmented estate under paragraph (1)(D).
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Paragraph (2) – Property Transferred by the Decedent During Marriage. This
category covers property that the decedent transferred in specified forms during “marriage”
(defined in Section 2-201(3) as “any marriage of the decedent to the decedent’s surviving
spouse”). If the decedent and the surviving spouse were married to each other more than once,
transfers that took place during any of their marriages to each other count as transfers during
marriage.
The word “transfer,” as it relates to a transfer by or of the decedent, is defined in Section 2-201(10), as including “(A) an exercise or release of a presently exercisable general power of appointment held by the decedent, (B) a lapse at death of a presently exercisable general power of appointment held by the decedent, and (C) an exercise, release, or lapse of a general power of appointment that the decedent created in himself [or herself] and of a power described in Section 2-205(2)(B) that the decedent conferred on a nonadverse party.”
Paragraph (2) covers the following specific forms of transfer:
(A) Any irrevocable transfer in which the decedent retained the right to the possession or enjoyment of, or to the income from, the property if and to the extent the decedent’s right terminated at or continued beyond the decedent’s death. The amount included is the value of the fraction of the property to which the decedent’s right related, to the extent the fraction of the property passed outside probate to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(B) Any transfer in which the decedent created a power over income or property, exercisable by the decedent alone or in conjunction with any other person, or exercisable by a nonadverse party, to or for the benefit of the decedent, creditors of the decedent, the decedent’s estate, or creditors of the decedent’s estate. The amount included with respect to a power over property is the value of the property subject to the power, and the amount included with respect to a power over income is the value of the property that produces or produced the income, to the extent the power in either case was exercisable at the decedent’s death to or for the benefit of any person other than the decedent’s surviving spouse or to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse. If the power is a power over both income and property and the preceding sentence produces different amounts, the amount included is the greater amount.
Various aspects of Paragraph (2) are illustrated by the following examples. Other examples illustrating various aspects of this paragraph are Examples 1 and 3 above, and Example 22 in the Comment to Section 2-206, below. In the following examples, as in the examples above, G is the decedent and S is the decedent’s surviving spouse.
Example 9 – Retained Income Interest for Life. Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for the income to be paid annually to G for life, then for the corpus of the trust to go to X. G died, survived by S and X.
The word “transfer,” as it relates to a transfer by or of the decedent, is defined in Section 2-201(10), as including “(A) an exercise or release of a presently exercisable general power of appointment held by the decedent, (B) a lapse at death of a presently exercisable general power of appointment held by the decedent, and (C) an exercise, release, or lapse of a general power of appointment that the decedent created in himself [or herself] and of a power described in Section 2-205(2)(B) that the decedent conferred on a nonadverse party.”
Paragraph (2) covers the following specific forms of transfer:
(A) Any irrevocable transfer in which the decedent retained the right to the possession or enjoyment of, or to the income from, the property if and to the extent the decedent’s right terminated at or continued beyond the decedent’s death. The amount included is the value of the fraction of the property to which the decedent’s right related, to the extent the fraction of the property passed outside probate to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(B) Any transfer in which the decedent created a power over income or property, exercisable by the decedent alone or in conjunction with any other person, or exercisable by a nonadverse party, to or for the benefit of the decedent, creditors of the decedent, the decedent’s estate, or creditors of the decedent’s estate. The amount included with respect to a power over property is the value of the property subject to the power, and the amount included with respect to a power over income is the value of the property that produces or produced the income, to the extent the power in either case was exercisable at the decedent’s death to or for the benefit of any person other than the decedent’s surviving spouse or to the extent the property passed at the decedent’s death, by exercise, release, lapse, in default, or otherwise, to or for the benefit of any person other than the decedent’s estate or surviving spouse. If the power is a power over both income and property and the preceding sentence produces different amounts, the amount included is the greater amount.
Various aspects of Paragraph (2) are illustrated by the following examples. Other examples illustrating various aspects of this paragraph are Examples 1 and 3 above, and Example 22 in the Comment to Section 2-206, below. In the following examples, as in the examples above, G is the decedent and S is the decedent’s surviving spouse.
Example 9 – Retained Income Interest for Life. Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for the income to be paid annually to G for life, then for the corpus of the trust to go to X. G died, survived by S and X.
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The value of the corpus of the trust at G’s death is included in the augmented estate under
paragraph (2)(A). This paragraph applies to a retained income interest that terminates at the
decedent’s death, as here. The amount included is the value of the property that passes outside
probate to any person other than the decedent’s estate or surviving spouse, which in this case is
the full value of the corpus that passes outside probate to X.
Had G retained the right to only one-half of the income, with the other half payable to Y for G’s lifetime, only one half of the value of the corpus at G’s death would have been included under paragraph (2)(A) because that paragraph specifies that “the amount included is the value of the fraction of the property to which the decedent’s right related.” Note, however, that if G had created the trust within two years before death, paragraph (3)(C) would require the inclusion of the value at the date the trust was established of the other half of the income interest for G’s life and of the remainder interest in the other half of the corpus, each value to be reduced by as much as $12,000 as appropriate under the facts, taking into account other gifts made to Y and to X in the same year, if any.
Example 10 – Retained Unitrust Interest for a Term. Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for a fixed percentage of the value of the corpus of the trust (determined annually) to be paid annually to G for 10 years, then for the corpus of the trust (and any accumulated income) to go to X. G died six years after the trust was created, survived by S and X.
The full value of the corpus at G’s death is included in the augmented estate under a combination of Sections 2-204 and 2-205(2)(A).
Section 2-205(2)(A) requires the inclusion of the commuted value of X’s remainder interest at G’s death. This paragraph applies to a retained income interest, which under Section 2-201(8) includes a unitrust interest. Moreover, Section 2-205(2)(A) not only applies to a retained income interest that terminates at the decedent’s death, but also applies to a retained income interest that continues beyond the decedent’s death, as here. The amount included is the value of the interest that passes outside probate to a person other than the decedent’s estate or surviving spouse, which in this case is the commuted value of X’s remainder interest at G’s death.
Section 2-204 requires the inclusion of the commuted value of the remaining four years of G’s unitrust interest because that interest passes through G’s probate estate to G’s devisees or heirs.
Because both the four-year unitrust interest and the remainder interest that directly succeeds it are included in the augmented estate, there is no need to derive separate values for X’s remainder interest and for G’s remaining unitrust interest. The sum of the two values will equal the full value of the corpus, and that is the value that is included in the augmented estate. (Note, however, that for purposes of Section 2-209 (Sources from Which Elective Share Payable), it might become necessary to derive separate values for these two interests.)
Had the trust been revocable, the end-result would have been the same. The only
Had G retained the right to only one-half of the income, with the other half payable to Y for G’s lifetime, only one half of the value of the corpus at G’s death would have been included under paragraph (2)(A) because that paragraph specifies that “the amount included is the value of the fraction of the property to which the decedent’s right related.” Note, however, that if G had created the trust within two years before death, paragraph (3)(C) would require the inclusion of the value at the date the trust was established of the other half of the income interest for G’s life and of the remainder interest in the other half of the corpus, each value to be reduced by as much as $12,000 as appropriate under the facts, taking into account other gifts made to Y and to X in the same year, if any.
Example 10 – Retained Unitrust Interest for a Term. Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for a fixed percentage of the value of the corpus of the trust (determined annually) to be paid annually to G for 10 years, then for the corpus of the trust (and any accumulated income) to go to X. G died six years after the trust was created, survived by S and X.
The full value of the corpus at G’s death is included in the augmented estate under a combination of Sections 2-204 and 2-205(2)(A).
Section 2-205(2)(A) requires the inclusion of the commuted value of X’s remainder interest at G’s death. This paragraph applies to a retained income interest, which under Section 2-201(8) includes a unitrust interest. Moreover, Section 2-205(2)(A) not only applies to a retained income interest that terminates at the decedent’s death, but also applies to a retained income interest that continues beyond the decedent’s death, as here. The amount included is the value of the interest that passes outside probate to a person other than the decedent’s estate or surviving spouse, which in this case is the commuted value of X’s remainder interest at G’s death.
Section 2-204 requires the inclusion of the commuted value of the remaining four years of G’s unitrust interest because that interest passes through G’s probate estate to G’s devisees or heirs.
Because both the four-year unitrust interest and the remainder interest that directly succeeds it are included in the augmented estate, there is no need to derive separate values for X’s remainder interest and for G’s remaining unitrust interest. The sum of the two values will equal the full value of the corpus, and that is the value that is included in the augmented estate. (Note, however, that for purposes of Section 2-209 (Sources from Which Elective Share Payable), it might become necessary to derive separate values for these two interests.)
Had the trust been revocable, the end-result would have been the same. The only
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difference would be that the revocability of the trust would cause paragraph (2)(A) to be
inapplicable, but would also cause overlapping application of paragraphs (1)(A) and (2)(B) to
X’s remainder interest. Because each of these paragraphs yields the same value, Section 2-
208(c) would require the commuted value of X’s remainder interest to be included in the
augmented estate under any one, but only one, of them. Note that neither paragraphs (1)(A) nor
(2)(B) would apply to G’s remaining four-year term because that four-year term would have
passed to G’s estate by lapse of G’s power to revoke. As above, the commuted value of G’s
remaining four-year term would be included in the augmented estate under Section 2-204,
obviating the need to derive separate valuations of G’s four-year term and X’s remainder
interest.
Example 11 – Personal Residence Trust. Before death, and during marriage, G created an irrevocable inter-vivos trust of G’s personal residence, retaining the right to occupy the residence for 10 years, then for the residence to go to X. G died six years after the trust was created, survived by S and X.
The full value of the residence at G’s death is included in the augmented estate under a combination of Sections 2-204 and 2-205(2)(A).
Section 2-205(2)(A) requires the inclusion of the commuted value of X’s remainder interest at G’s death. This paragraph applies to a retained right to possession that continues beyond the decedent’s death, as here. The amount included is the value of the interest that passes outside probate to a person other than the decedent’s estate or surviving spouse, which in this case is the commuted value of X’s remainder interest at G’s death.
Section 2-204 requires the inclusion of the commuted value of G’s remaining four-year term because that interest passes through G’s probate estate to G’s devisees or heirs.
As in Example 10, there is no need to derive separate valuations of the remaining four- year term and the remainder interest that directly succeeds it. The sum of the two values will equal the full value of the residence at G’s death, and that is the amount included in the augmented estate. (Note, however, that for purposes of Section 2-209 (Sources from Which Elective Share Payable), it might become necessary to derive separate values for these two interests.)
Example 12 – Retained Annuity Interest for a Term. Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for a fixed dollar amount to be paid annually to G for 10 years, then for half of the corpus of the trust to go to X; the other half was to remain in trust for an additional five years, after which time the remaining corpus was to go to X. G died 14 years after the trust was created, survived by S and X.
The value of the one-half of the corpus of the trust remaining at G’s death is included in the augmented estate under a combination of Sections 2-204 and 2-205(2)(A). The other one- half of the corpus of the trust that was distributed to X four years before G’s death is not included in the augmented estate.
Example 11 – Personal Residence Trust. Before death, and during marriage, G created an irrevocable inter-vivos trust of G’s personal residence, retaining the right to occupy the residence for 10 years, then for the residence to go to X. G died six years after the trust was created, survived by S and X.
The full value of the residence at G’s death is included in the augmented estate under a combination of Sections 2-204 and 2-205(2)(A).
Section 2-205(2)(A) requires the inclusion of the commuted value of X’s remainder interest at G’s death. This paragraph applies to a retained right to possession that continues beyond the decedent’s death, as here. The amount included is the value of the interest that passes outside probate to a person other than the decedent’s estate or surviving spouse, which in this case is the commuted value of X’s remainder interest at G’s death.
Section 2-204 requires the inclusion of the commuted value of G’s remaining four-year term because that interest passes through G’s probate estate to G’s devisees or heirs.
As in Example 10, there is no need to derive separate valuations of the remaining four- year term and the remainder interest that directly succeeds it. The sum of the two values will equal the full value of the residence at G’s death, and that is the amount included in the augmented estate. (Note, however, that for purposes of Section 2-209 (Sources from Which Elective Share Payable), it might become necessary to derive separate values for these two interests.)
Example 12 – Retained Annuity Interest for a Term. Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for a fixed dollar amount to be paid annually to G for 10 years, then for half of the corpus of the trust to go to X; the other half was to remain in trust for an additional five years, after which time the remaining corpus was to go to X. G died 14 years after the trust was created, survived by S and X.
The value of the one-half of the corpus of the trust remaining at G’s death is included in the augmented estate under a combination of Sections 2-204 and 2-205(2)(A). The other one- half of the corpus of the trust that was distributed to X four years before G’s death is not included in the augmented estate.
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Section 2-205(2)(A) requires the inclusion of the commuted value of X’s remainder
interest in half of the corpus of the trust. This subsection applies to a retained income interest,
which under Section 2-201(8), includes an annuity interest that continues beyond the decedent’s
death, as here. The amount included is the value of the interest that passes outside probate to a
person other than the decedent’s estate or surviving spouse, which in this case is the commuted
value of X’s remainder interest at G’s death.
Section 2-204 requires the inclusion of the commuted value of the remaining one year of G’s annuity interest in half of the corpus of the trust, which passed through G’s probate estate to G’s devisees or heirs.
There is no need to derive separate valuations of G’s remaining annuity interest and X’s remainder interest that directly succeeds it. The sum of the two values will equal the full value of the remaining one-half of the corpus of the trust at G’s death, and that is the amount included in the augmented estate. (Note, however, that for purposes of Section 2-209 (Sources from Which Elective Share Payable), it might become necessary to derive separate values for these two interests.)
Had G died eleven years after the trust was created, so that the termination of half of the trust would have occurred within the two-year period next preceding G’s death, the value of the half of the corpus of the trust that was distributed to X 10 years after the trust was created would also have been included in the augmented estate under Section 2-205(3)(A).
Example 13 – Commercial Annuity. Before G’s death, and during marriage, G purchased three commercial annuities from an insurance company. Annuity One was a single-life annuity that paid a fixed sum to G annually and that contained a refund feature payable to X if G died within 10 years. Annuity Two was a single-life annuity that paid a fixed sum to G annually, but contained no refund feature. Annuity Three was a self and survivor annuity that paid a fixed sum to G annually for life, and then paid a fixed sum annually to X for life. G died six years after purchasing the annuities, survived by S and X.
Annuity One: The value of the refund payable to X at G’s death under Annuity One is included in the augmented estate under paragraph (2)(A). G retained an income interest, as defined in Section 2-201(8), that terminated at G’s death. The amount included is the value of the interest that passes outside of probate to a person other than the decedent’s estate or surviving spouse, which in this case is the refund amount to which X is entitled.
Annuity Two: Annuity Two does not cause any value to be included in the augmented estate because it expired at G’s death; although G retained an income interest, as defined in Section 2-201(8), that terminated at G’s death, nothing passed outside probate to any person other than G’s estate or surviving spouse.
Annuity Three: The commuted value at G’s death of the annuity payable to X under Annuity Three is included in the augmented estate under paragraph (2)(A). G retained an income interest, as defined in Section 2-201(8), that terminated at G’s death. The amount included is the value of the interest that passes outside probate to a person other than the
Section 2-204 requires the inclusion of the commuted value of the remaining one year of G’s annuity interest in half of the corpus of the trust, which passed through G’s probate estate to G’s devisees or heirs.
There is no need to derive separate valuations of G’s remaining annuity interest and X’s remainder interest that directly succeeds it. The sum of the two values will equal the full value of the remaining one-half of the corpus of the trust at G’s death, and that is the amount included in the augmented estate. (Note, however, that for purposes of Section 2-209 (Sources from Which Elective Share Payable), it might become necessary to derive separate values for these two interests.)
Had G died eleven years after the trust was created, so that the termination of half of the trust would have occurred within the two-year period next preceding G’s death, the value of the half of the corpus of the trust that was distributed to X 10 years after the trust was created would also have been included in the augmented estate under Section 2-205(3)(A).
Example 13 – Commercial Annuity. Before G’s death, and during marriage, G purchased three commercial annuities from an insurance company. Annuity One was a single-life annuity that paid a fixed sum to G annually and that contained a refund feature payable to X if G died within 10 years. Annuity Two was a single-life annuity that paid a fixed sum to G annually, but contained no refund feature. Annuity Three was a self and survivor annuity that paid a fixed sum to G annually for life, and then paid a fixed sum annually to X for life. G died six years after purchasing the annuities, survived by S and X.
Annuity One: The value of the refund payable to X at G’s death under Annuity One is included in the augmented estate under paragraph (2)(A). G retained an income interest, as defined in Section 2-201(8), that terminated at G’s death. The amount included is the value of the interest that passes outside of probate to a person other than the decedent’s estate or surviving spouse, which in this case is the refund amount to which X is entitled.
Annuity Two: Annuity Two does not cause any value to be included in the augmented estate because it expired at G’s death; although G retained an income interest, as defined in Section 2-201(8), that terminated at G’s death, nothing passed outside probate to any person other than G’s estate or surviving spouse.
Annuity Three: The commuted value at G’s death of the annuity payable to X under Annuity Three is included in the augmented estate under paragraph (2)(A). G retained an income interest, as defined in Section 2-201(8), that terminated at G’s death. The amount included is the value of the interest that passes outside probate to a person other than the
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decedent’s estate or surviving spouse, which in this case is the commuted value of X’s right to
the annuity payments for X’s lifetime.
Example 14 – Joint Power. Before death, and during marriage, G created an inter-vivos trust, providing for the income to go to X for life, remainder in corpus at X’s death to X’s then- living descendants, by representation; if none, to a specified charity. G retained a power, exercisable only with the consent of X, allowing G to withdraw all or any portion of the corpus at any time during G’s lifetime. G died without exercising the power, survived by S and X.
The value of the corpus of the trust at G’s death is included in the augmented estate under paragraph (2)(B). This paragraph applies to a power created by the decedent over the corpus of the trust that is exercisable by the decedent “in conjunction with any other person,” who in this case is X. Note that the fact that X has an interest in the trust that would be adversely affected by the exercise of the power in favor of G is irrelevant. The amount included is the full value of the corpus of the trust at G’s death because the power related to the full corpus of the trust and the full corpus passed at the decedent’s death, by lapse or default of the power, to a person other than the decedent’s estate or surviving spouse – X, X’s descendants, and the specified charity.
Example 15 – Power in Nonadverse Party. Before death, and during marriage, G created an inter-vivos trust, providing for the income to go to X for life, remainder in corpus to X’s then- living descendants, by representation; if none, to a specified charity. G conferred a power on the trustee, a bank, to distribute, in the trustee’s complete and uncontrolled discretion, all or any portion of the trust corpus to G or to X. One year before G’s death, the trustee distributed $50,000 of trust corpus to G and $40,000 of trust corpus to X. G died, survived by S and X.
The full value of the portion of the corpus of the trust remaining at G’s death is included in the augmented estate under paragraph (2)(B). This paragraph applies to a power created by the decedent over the corpus of the trust that is exercisable by a “nonadverse party.” As defined in Section 2-201(4), the term “nonadverse party” is “a person who does not have a substantial beneficial interest in the trust or other property arrangement that would be adversely affected by the exercise or nonexercise of the power that he [or she] possesses respecting the trust or other property arrangement.” The trustee in this case is a nonadverse party. The amount included is the full value of the corpus of the trust at G’s death because the trustee’s power related to the full corpus of the trust and the full corpus passed at the decedent’s death, by lapse or default of the power, to a person other than the decedent’s estate or surviving spouse – X, X’s descendants, and the specified charity.
In addition to the full value of the remaining corpus at G’s death, an additional amount is included in the augmented estate because of the $40,000 distribution of corpus to X within two years before G’s death. As defined in Section 2-201(9), a transfer of the decedent includes the exercise “of a power described in Section 2-205(2)(B) that the decedent conferred on a nonadverse party.” Consequently, the $40,000 distribution to X is considered to be a transfer of the decedent within two years before death, and is included in the augmented estate under paragraph (3)(C) to the extent it exceeded $12,000 of the aggregate gifts to X that year. If no other gifts were made to X in that year, the amount included would be $28,000 ($40,000 - $12,000).
Example 14 – Joint Power. Before death, and during marriage, G created an inter-vivos trust, providing for the income to go to X for life, remainder in corpus at X’s death to X’s then- living descendants, by representation; if none, to a specified charity. G retained a power, exercisable only with the consent of X, allowing G to withdraw all or any portion of the corpus at any time during G’s lifetime. G died without exercising the power, survived by S and X.
The value of the corpus of the trust at G’s death is included in the augmented estate under paragraph (2)(B). This paragraph applies to a power created by the decedent over the corpus of the trust that is exercisable by the decedent “in conjunction with any other person,” who in this case is X. Note that the fact that X has an interest in the trust that would be adversely affected by the exercise of the power in favor of G is irrelevant. The amount included is the full value of the corpus of the trust at G’s death because the power related to the full corpus of the trust and the full corpus passed at the decedent’s death, by lapse or default of the power, to a person other than the decedent’s estate or surviving spouse – X, X’s descendants, and the specified charity.
Example 15 – Power in Nonadverse Party. Before death, and during marriage, G created an inter-vivos trust, providing for the income to go to X for life, remainder in corpus to X’s then- living descendants, by representation; if none, to a specified charity. G conferred a power on the trustee, a bank, to distribute, in the trustee’s complete and uncontrolled discretion, all or any portion of the trust corpus to G or to X. One year before G’s death, the trustee distributed $50,000 of trust corpus to G and $40,000 of trust corpus to X. G died, survived by S and X.
The full value of the portion of the corpus of the trust remaining at G’s death is included in the augmented estate under paragraph (2)(B). This paragraph applies to a power created by the decedent over the corpus of the trust that is exercisable by a “nonadverse party.” As defined in Section 2-201(4), the term “nonadverse party” is “a person who does not have a substantial beneficial interest in the trust or other property arrangement that would be adversely affected by the exercise or nonexercise of the power that he [or she] possesses respecting the trust or other property arrangement.” The trustee in this case is a nonadverse party. The amount included is the full value of the corpus of the trust at G’s death because the trustee’s power related to the full corpus of the trust and the full corpus passed at the decedent’s death, by lapse or default of the power, to a person other than the decedent’s estate or surviving spouse – X, X’s descendants, and the specified charity.
In addition to the full value of the remaining corpus at G’s death, an additional amount is included in the augmented estate because of the $40,000 distribution of corpus to X within two years before G’s death. As defined in Section 2-201(9), a transfer of the decedent includes the exercise “of a power described in Section 2-205(2)(B) that the decedent conferred on a nonadverse party.” Consequently, the $40,000 distribution to X is considered to be a transfer of the decedent within two years before death, and is included in the augmented estate under paragraph (3)(C) to the extent it exceeded $12,000 of the aggregate gifts to X that year. If no other gifts were made to X in that year, the amount included would be $28,000 ($40,000 - $12,000).
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Paragraph (3) – Property Transferred by the Decedent During Marriage and
During the Two-Year Period Next Preceding the Decedent’s Death. This paragraph – called
the two-year rule – requires inclusion in the augmented estate of the value of property that the
decedent transferred in specified forms during marriage and within two years of death. The word
“transfer,” as it relates to a transfer by or of the decedent, is defined in Section 2-201(9), as
including “(A) an exercise or release of a presently exercisable general power of appointment
held by the decedent, (B) a lapse at death of a presently exercisable general power of
appointment held by the decedent, and (C) an exercise, release, or lapse of a general power of
appointment that the decedent created in himself [or herself] and of a power described in Section
2-205(2)(B) that the decedent conferred on a nonadverse party.”
The two-year rule of paragraph (3) covers the following specific forms of transfer:
(A) Any property that passed as a result of the termination of a right or interest in, or power over, property that would have been included in the augmented estate under paragraph (1) (A), (B), or (C), or under paragraph (2), if the right, interest, or power had not terminated until the decedent’s death. The amount included is the value of the property that would have been included under those paragraphs if the property were valued at the time the right, interest, or power terminated, and is included only to the extent the property passed upon termination to or for the benefit of any person other than the decedent or the decedent’s estate, spouse, or surviving spouse. As used in this subparagraph, “termination,” with respect to a right or interest in property, occurs when the right or interest terminated by the terms of the governing instrument or the decedent transferred or relinquished the right or interest, and, with respect to a power over property, occurs when the power terminated by exercise, release, lapse, default, or otherwise, but, with respect to a power described in paragraph (1)(A), “termination” occurs when the power terminated by exercise or release, but not otherwise.
(B) Any transfer of or relating to an insurance policy on the life of the decedent if the proceeds would have been included in the augmented estate under paragraph (1)(D) had the transfer not occurred. The amount included is the value of the insurance proceeds to the extent the proceeds were payable at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(C) Any transfer of property, to the extent not otherwise included in the augmented estate, made to or for the benefit of a person other than the decedent’s surviving spouse. The amount included is the value of the transferred property to the extent the aggregate transfers to any one donee in either of the two years exceeded $12,000.
Various aspects of paragraph (3) are illustrated by the following examples. Other examples illustrating various aspects of this paragraph are Examples 2, 9, 12, 14, and 15, above, and Examples 33 and 34 in the Comment to Section 2-207, below. In the following examples, as in the examples above, G is the decedent and S is the decedent’s surviving spouse.
Example 16 – Retained Income Interest Terminating Within Two Years Before Death.
Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for the
The two-year rule of paragraph (3) covers the following specific forms of transfer:
(A) Any property that passed as a result of the termination of a right or interest in, or power over, property that would have been included in the augmented estate under paragraph (1) (A), (B), or (C), or under paragraph (2), if the right, interest, or power had not terminated until the decedent’s death. The amount included is the value of the property that would have been included under those paragraphs if the property were valued at the time the right, interest, or power terminated, and is included only to the extent the property passed upon termination to or for the benefit of any person other than the decedent or the decedent’s estate, spouse, or surviving spouse. As used in this subparagraph, “termination,” with respect to a right or interest in property, occurs when the right or interest terminated by the terms of the governing instrument or the decedent transferred or relinquished the right or interest, and, with respect to a power over property, occurs when the power terminated by exercise, release, lapse, default, or otherwise, but, with respect to a power described in paragraph (1)(A), “termination” occurs when the power terminated by exercise or release, but not otherwise.
(B) Any transfer of or relating to an insurance policy on the life of the decedent if the proceeds would have been included in the augmented estate under paragraph (1)(D) had the transfer not occurred. The amount included is the value of the insurance proceeds to the extent the proceeds were payable at the decedent’s death to or for the benefit of any person other than the decedent’s estate or surviving spouse.
(C) Any transfer of property, to the extent not otherwise included in the augmented estate, made to or for the benefit of a person other than the decedent’s surviving spouse. The amount included is the value of the transferred property to the extent the aggregate transfers to any one donee in either of the two years exceeded $12,000.
Various aspects of paragraph (3) are illustrated by the following examples. Other examples illustrating various aspects of this paragraph are Examples 2, 9, 12, 14, and 15, above, and Examples 33 and 34 in the Comment to Section 2-207, below. In the following examples, as in the examples above, G is the decedent and S is the decedent’s surviving spouse.
Example 16 – Retained Income Interest Terminating Within Two Years Before Death.
Before death, and during marriage, G created an irrevocable inter-vivos trust, providing for the
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income to go to G for 10 years, then for the corpus of the trust to go to X. G died 11 years after
the trust was created, survived by S and X. G was married to S when the trust terminated.
The full value of the corpus of the trust at the date of its termination is included in the augmented estate under paragraph (3)(A). The full value of the corpus at death would have been included in the augmented estate under paragraph (2)(A) had G’s income interest not terminated until death; G’s income interest terminated within the two-year period next preceding G’s death; G was married to S when the trust was created and when the income interest terminated; and the trust corpus upon termination passed to a person other than S, G, or G’s estate.
Example 17 – Personal Residence Trust Terminating Within Two Years Before Death.
Before death, and during marriage, G created an irrevocable inter-vivos trust of G’s personal residence, retaining the right to occupy the residence for 10 years, then for the residence to go to X. G died eleven years after the trust was created, survived by S and X. G was married to S when the right to possession terminated.
The full value of the residence at the date the trust terminated is included in the augmented estate under paragraph (3)(A). The full value of the residence would have been included in the augmented estate under paragraph (2)(A) had G’s right to possession not terminated until death; G’s right to possession terminated within the two-year period next preceding G’s death; G was married to S when the trust was created and when the right to possession terminated; and the residence passed upon termination to a person other than S, G, or G’s estate.
Example 18 – Irrevocable Assignment of Life-Insurance Policy Within Two Years Before Death. In Example 8, G irrevocably assigned the life-insurance policy to X and Y within two years preceding G’s death. G was married to S when the policy was assigned. G died, survived by S, X, and Y.
The full value of the proceeds are included in the augmented estate under paragraph (3)(B). The full value of the proceeds would have been included in the augmented estate under paragraph (1)(D) had G owned the policy at death; G assigned the policy within the two-year period next preceding G’s death; G was married to S when the policy was assigned; and the proceeds were payable to a person other than S or G’s estate.
Example 19 – Property Purchased in Joint Tenancy Within Two Years Before Death.
Within two years before death, and during marriage, G and X purchased property in joint tenancy; G contributed $75,000 of the $100,000 purchase price and X contributed $25,000. G died, survived by S and X.
Regardless of when or by whom the property was purchased, the value at G’s death of G’s fractional interest of one-half is included in the augmented estate under paragraph (1)(B) because G’s half passed to X as surviving joint tenant. Because the property was purchased within two years before death, and during marriage, and because G’s contribution exceeded the value of G’s fractional interest in the property, the excess contribution of $25,000 constitutes a gift to X within the two-year period next preceding G’s death. Consequently, an additional
The full value of the corpus of the trust at the date of its termination is included in the augmented estate under paragraph (3)(A). The full value of the corpus at death would have been included in the augmented estate under paragraph (2)(A) had G’s income interest not terminated until death; G’s income interest terminated within the two-year period next preceding G’s death; G was married to S when the trust was created and when the income interest terminated; and the trust corpus upon termination passed to a person other than S, G, or G’s estate.
Example 17 – Personal Residence Trust Terminating Within Two Years Before Death.
Before death, and during marriage, G created an irrevocable inter-vivos trust of G’s personal residence, retaining the right to occupy the residence for 10 years, then for the residence to go to X. G died eleven years after the trust was created, survived by S and X. G was married to S when the right to possession terminated.
The full value of the residence at the date the trust terminated is included in the augmented estate under paragraph (3)(A). The full value of the residence would have been included in the augmented estate under paragraph (2)(A) had G’s right to possession not terminated until death; G’s right to possession terminated within the two-year period next preceding G’s death; G was married to S when the trust was created and when the right to possession terminated; and the residence passed upon termination to a person other than S, G, or G’s estate.
Example 18 – Irrevocable Assignment of Life-Insurance Policy Within Two Years Before Death. In Example 8, G irrevocably assigned the life-insurance policy to X and Y within two years preceding G’s death. G was married to S when the policy was assigned. G died, survived by S, X, and Y.
The full value of the proceeds are included in the augmented estate under paragraph (3)(B). The full value of the proceeds would have been included in the augmented estate under paragraph (1)(D) had G owned the policy at death; G assigned the policy within the two-year period next preceding G’s death; G was married to S when the policy was assigned; and the proceeds were payable to a person other than S or G’s estate.
Example 19 – Property Purchased in Joint Tenancy Within Two Years Before Death.
Within two years before death, and during marriage, G and X purchased property in joint tenancy; G contributed $75,000 of the $100,000 purchase price and X contributed $25,000. G died, survived by S and X.
Regardless of when or by whom the property was purchased, the value at G’s death of G’s fractional interest of one-half is included in the augmented estate under paragraph (1)(B) because G’s half passed to X as surviving joint tenant. Because the property was purchased within two years before death, and during marriage, and because G’s contribution exceeded the value of G’s fractional interest in the property, the excess contribution of $25,000 constitutes a gift to X within the two-year period next preceding G’s death. Consequently, an additional
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$13,000 ($25,000 minus $12,000) is included in the augmented estate under paragraph (3)(C) as
a gift to X.
Had G provided all of the $100,000 purchase price, then paragraph (3)(C) would require $38,000 ($50,000 minus $12,000) to be included in the augmented estate (in addition to the inclusion of one-half the value of the property at G’s death under paragraph (1)(B)).
Had G provided one-half or less of the $100,000 purchase price, then G would not have made a gift to X within the two-year period next preceding G’s death. Half the value of the property at G’s death would still be included in the augmented estate under paragraph (1)(B), however.
Cross Reference. On obtaining written spousal consent to assure qualification for the charitable deduction for charitable remainder trusts or outright charitable donations, see the Comment to Section 2-208.
Historical Note. This Comment was added in 1993 and revised in 2008.
Had G provided all of the $100,000 purchase price, then paragraph (3)(C) would require $38,000 ($50,000 minus $12,000) to be included in the augmented estate (in addition to the inclusion of one-half the value of the property at G’s death under paragraph (1)(B)).
Had G provided one-half or less of the $100,000 purchase price, then G would not have made a gift to X within the two-year period next preceding G’s death. Half the value of the property at G’s death would still be included in the augmented estate under paragraph (1)(B), however.
Cross Reference. On obtaining written spousal consent to assure qualification for the charitable deduction for charitable remainder trusts or outright charitable donations, see the Comment to Section 2-208.
Historical Note. This Comment was added in 1993 and revised in 2008.
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