“Executors and Estate Tax Return Preparers Get Final Guidance for Valuation of Split-Interest Gifts”

About a year after issuing proposed regulations to address the value of assets subject to a split-interest transfer which is includable in the estate of a deceased transferor, the Treasury Department released the final regulations last summer.

April 2009

About a year after issuing proposed regulations to address the value of assets subject to a split-interest transfer which is includable in the estate of a deceased transferor, the Treasury Department released the final regulations last summer. The final regulations confirm that Internal Revenue Code Section 2036 will be the controlling statute in most cases. The primary exceptions are cases involving decedents' estates with certain annuities, when Section 2039 will provide the resolution.

The final regulations cover a very broad spectrum of both charitable and noncharitable types of split-interest transfers. Two examples are Charitable Remainder Unitrusts (CRUT) and Charitable Remainder Annuity Trusts (CRAT).

The portion of a CRUT which is includable in the gross estate of a deceased transferor is determined by dividing what is known as the "equivalent interest rate" by the applicable interest rate. This "equivalent interest rate" is a calculation based on the payout rate of the CRUT, adjusted for payment frequency, divided by the excess of 1 over the adjusted payout rate. The applicable interest rate is determined of course by reference to Section 7520.

Fortunately, the calculation required to determine the value of a CRAT which is includable in a deceased grantor's gross estate is less complicated! The portion includable in the deceased grantor's gross estate is the annual annuity amount divided by the applicable Section 7520 rate.

For more information about these final regulations, please contact a member of the Probate, Trust & Personal Planning Group at Partridge Snow & Hahn LLP. 

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