Page 30

For example, if the decedent died on July 10, 2022, you should examine gift tax returns for 2022, 2021, 2020, and 2019. However, the gift taxes on the 2019 return that are attributable to gifts made on or before July 10, 2019, are not included in the gross estate. Explain how you figured the includible gift taxes if the entire gift taxes shown on any Form 709 filed for gifts made within 3 years of death are not included in the gross estate. Also attach copies of any relevant gift tax returns filed by the decedent's spouse, with "Exhibit to Estate Tax Return" entered across the top of the first page of each, for gifts made within 3 years of death. 2. Other transfers within 3 years of death (section 2035(a)). These transfers include only the following. • Any transfer by the decedent with respect to a life insurance policy within 3 years of death. • Any transfer within 3 years of death of a retained section 2036 life estate, section 2037 reversionary interest, or section 2038 power to revoke, etc., if the property subject to the life estate, interest, or power would have been included in the gross estate had the decedent continued to possess the life estate, interest, or power until death. These transfers are reported on Schedule G, regardless of whether a gift tax return was required to be filed for them when they were made. However, the amount includible and the information required to be shown for the transfers are determined: • For insurance on the life of the decedent using the instructions for Schedule D (attach Form 712); • For insurance on the life of another using the instructions for Schedule F (attach Form 712); and • For sections 2036, 2037, and 2038 transfers, using paragraphs (3), (4), and (5) of these instructions. 3. Transfers with retained life estate (section 2036). These are transfers by the decedent in which the decedent retained an interest in the transferred property. The transfer can be in trust or otherwise, but excludes bona fide sales for adequate and full consideration. Interests or rights. Section 2036 applies to the following retained interests or rights. • The right to income from the transferred property. • The right to the possession or enjoyment of the property. • The right, either alone or with any person, to designate the persons who shall receive the income from, possess, or enjoy, the property. Retained annuity, unitrust, and other income interests in trusts. If a decedent transferred property into a trust and retained or reserved the right to use the property, or the right to an annuity, unitrust, or other interest in such trust for the property for the decedent's life, any period not ascertainable without reference to the decedent's death, or for a period that does not, in fact, end before the decedent's death, then the decedent's right to use the property or the retained annuity, unitrust, or other interest (whether payable from income and/or principal) is the retention of the possession or enjoyment of, or the right to the income from, the property for purposes of section 2036. See Regulations section 20.2036-1(c)(2). Retained voting rights. Transfers with a retained life estate also include transfers of stock in a controlled corporation made after June 22, 1976, if the decedent retained or acquired voting rights in the stock. If the decedent retained direct or indirect voting rights in a controlled corporation, the decedent is considered to have retained enjoyment of the transferred property. A corporation is a controlled corporation if the decedent owned (actually or constructively) or had the right (either alone or with any other person) to vote at least 20% of the total combined voting power of all classes of stock. See section 2036(b)(2). If these voting rights ceased or were relinquished within 3 years of the decedent's death, the corporate interests are included in the gross estate as if the decedent had actually retained the voting rights until death. The amount includible in the gross estate is the value of the transferred property at the time of the decedent's death. If the decedent kept or reserved an interest or right to only a part of the transferred property, the amount includible in the gross estate is a corresponding part of the entire value of the property. A retained life estate does not have to be legally enforceable. What matters is that a substantial economic benefit was retained. For example, if a parent transferred the home title to one’s child, but with the informal understanding that the parent was to continue living there until the parent’s death, the value of the home would be includible in the parent’s estate even if the agreement would not have been legally enforceable. 4. Transfers taking effect at death (section 2037). A transfer that takes effect at the decedent's death is one under which possession or enjoyment can be obtained only by surviving the decedent. A transfer is not treated as one that takes effect at the decedent's death unless the decedent retained a reversionary interest (defined later) in the property that immediately before the decedent's death had a value of more than 5% of the value of the transferred property. If the transfer was made before October 8, 1949, the reversionary interest must have arisen by the express terms of the instrument of transfer. A reversionary interest is, generally, any right under which the transferred property will or may be returned to the decedent or the decedent's estate. It also includes the possibility that the transferred property may become subject to a power of disposition by the decedent. It does not matter if the right arises by the express terms of the instrument of transfer or by operation of law. For this purpose, reversionary interest does not include the possibility that the income alone from the property may return to the decedent or become subject to the decedent's power of disposition. 5. Revocable transfers (section 2038). The gross estate includes the value of any transferred property which was subject to the decedent's power to alter, amend, revoke, or terminate the transfer at the time of the decedent's death. A decedent's power to change beneficiaries and to increase any beneficiary's enjoyment of the property are examples of this. It does not matter whether the power was reserved at the time of the transfer, whether it arose by operation of law, or whether it was later created or conferred. The rule applies regardless of the source from which the power was acquired, and regardless of whether the power was exercisable by the decedent alone or with -30- Instructions for Form 706 (Rev. 09-2022)