Rev. Rul. 66-307

Advice has been requested as to the valuation, for the purpose of section 2013 of the Internal Revenue Code of 1954, of the life estate of a life tenant-transferee, where it was known at the death of the transferor that the life tenant, afflicted with a ravaging and incurable disease of advanced state, could not survive for more than a year. The life tenant in fact survived the transferor by less than 4 months. In the estate of the transferor, the life estate had an actuarial value of about 52 percent, whereas the life tenant received in benefits prior to his death only about 1 percent of the value of the trust property.

Section 2013(d) of the Code provides, in part, that the value of property transferred to the decedent shall be the value used for the purpose of determining the Federal estate tax liability of the estate of the transferor.

For estate tax purposes, the value of life and remainder interests must be determined from facts available at the time of the death of the decedent. That the life tenant may in fact survive the decedent by only a short period of time is not controlling. United States v. Provident Trust Co. , 291 U.S. 272, Ct. D. 797, C.B. XIII-1, 365 (1934). The actuarial table prescribed in section 20.2031-7 of the Estate Tax Regulations reflect deaths of those who die prematurely from all causes as well as those who enjoy greater longevity.

However, if it is known on the valuation date that a life tenant is afflicted with a fatal and incurable disease in its advanced stages, and that he cannot survive for more than a brief period of time, the value of the life or remainder interest should be determined by reference to such known facts, in accordance with the principles enunciated in Estate of Nellie H. Jennings v. Commissioner , 10 T.C. 323 (1948), acquiescence, C.B. 1953-1,5, and similar cases. See Estate of Nicholas Murray Butler v. Commissioner , 18 T.C. 914 (1952), acquiescence, C.B. 1953-1, 3; Estate of John Halliday Denbigh v. Commissioner , 7 T.C. 387 (1946), acquiescence, C.B. 1953-1, 4; Huntington National Bank of Columbus, Ohio v. Commissioner , 13 T.C. 760 (1949), acquiescence in part, C.B. 1950-1, 3. Such was the rule followed in determining the deduction for a bequest in remainder to charity, Estate of Nellie H. Jennings , and the value of an annuity contract to be included in the gross estate, Estate of J. H. Denbigh . The same principle was applied by the court in a case relating to the amount bequeathed to a decedent's widow which qualified for the marital deduction. See Estate of John P. Hoelzel v. Commissioner , 28 T.C. 384 (1959), acquiescence, C.B. 1957-2, 5. See also Estate of James Stuart Pritchard v. Commissioner , 4 T.C. 204 (1944) (whether approximate cash surrender value was full and adequate consideration for assignment of insurance policies shortly before death of insured).

Accordingly, it is held that the principle of valuation applied in the above-cited cases should also be applied in determining the value at date of transferor's death of a transferee's life or remainder interest, for the purposes of section 2013 of the Code.

However, it may not be applied in computing the value of a decedent's reversionary interest for the purposes of sections 2037(b) and 2042(2) of the Code. In these sections Congress has provided a rule of administrative convenience which requires the application of actuarial tables notwithstanding the facts of the decedent's death or the facts surrounding his death.