Rev. Rul. 59-9

Advice has been requested whether the estate of a decedent who had been the beneficiary of a life estate in a testamentary trust may be credited with all or any part of the amount of the Federal estate tax paid with respect to the transfer of such property in the estate of a prior decedent.

In the instant case the decedent and her sister were the lifetime income beneficiaries of a residual trust created under the will of their father. Under the terms of the will the decedent and her sister were to receive the income from the trust in equal shares during their lifetimes and, at the death of either, the income was to be paid to the survivor. At the death of the last to survive, the income was to be paid to their children. The decedent died in the year 1955 which was within ten years after the death of her father. The value of the property included in the residual trust was included in the father's gross estate and a Federal estate tax was paid thereon. Since the interest which the decedent possessed in the residual trust terminated at her death, the life estate which she had in the trust was not included in her gross estate for Federal estate tax purposes. The specific question presented is whether the life estate qualifies for the credit for tax on prior transfers authorized by section 2013 of the Internal Revenue Code of 1954 even though it is not included in the gross estate of the transferee decedent.

Section 2013 of the Code provides that the estate of a deceased who had received property from another decedent shall be credited with all or a part of the amount of the Federal estate tax paid with respect to such property in the transferor decedent's estate, provided that the decedents died within the statutory period.

In determining whether the credit authorized by section 2013 of the Code is allowable, it is not necessary that the property transferred be identified in or traced through the transferee's estate. If the property was included in the gross estate of the transferor and a Federal estate tax paid thereon, the credit for tax on prior transfers may be applied to the interest received by the transferee, notwithstanding the fact that such interest is not included in the transferee decedent's estate for Federal estate tax purposes. Furthermore, the right of survivorship which the decedent possessed in the life tenancy also constitutes an interest in property which passed to her from her father and, as such, qualifies for the credit authorized by section 2013 of the Code.

The amount to be used in computing the amount of credit which may be allowed is the value of the life estate plus the value of the secondary life estate determined as of the date of the transferor-decedent's death on the basis of recognized actuarial principles and without regard to the amount of income actually received by the life tenant.

In view of the foregoing, it is held that the value of a life estate, without more, qualifies for the credit for tax on prior transfers authorized by section 2013 of the Code, notwithstanding the fact that it is not included in the gross estate of the transferee decedent.