Rev. Rul. 66-86

Advice has been requested whether the value of the corpus of a trust established in the manner set forth below is to be included in the decedent's gross estate for Federal estate tax purposes.

The decedent's former husband died intestate in 1930, a citizen and resident of Switzerland. At the time of his death, his estate in the United States consisted of shares of stock in a United States corporation. The husband was survived by the decedent, his mother, and a sister. Under the laws of Descent and Distribution of Switzerland, a surviving spouse receives ownership in one-fourth and the usufruct for life in three-fourths of her husband's estate if he, as here, leaves no descendants but does leave legal heirs designated as `the group of his parents.' A usufruct is comparable to the life estate of the common law.

To effect the distribution of the assets of the estate of decedent's husband in accordance with the laws of Descent and Distribution of Switzerland, one-fourth of the shares of stock were distributed to the decedent outright. The remaining three-fourths of the shares were placed in trust by the decedent and the remaindermen acting together. The trust indenture provided that the net trust income was to be distributed to the decedent during her lifetime. After her death, the trust assets were to be divided into two equal shares. One such share was to be distributed to the mother of the decedent's husband. The other share was to be distributed to the sister of the decedent's husband.

Section 2033 of the Internal Revenue Code of 1954 provides:

The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death.

It was held in Williams v. United States , 41 Fed. (2d) 895 (1930), that where a decedent had only a life estate in property transferred by another, no portion of the property was includible in the decedent's gross estate under section 402(c) of the Revenue Act of 1921, a predecessor of section 2033 of the 1954 Code. Similarly, the decedent in the instant case had no interest in the trust corpus which is includible under section 2033 of the Code.

Section 2036(a) of the Code provides:

General rule .-The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death-

(1) the possession or enjoyment of, or the right to the income from, the property * * *

The value of the property subject to a decedent's life estate is includible under section 2036 of the Code only where the decedent, in legal effect, made a transfer of the property and retained the life estate. Here, although the decedent was one of the settlors of the trust, she was never entitled to more than a usufruct for life in the trust property. Thus, she did not have a sufficient interest in the trust property to make a transfer thereof within the meaning of section 2036 of the Code.

Accordingly, it is held that no part of the value of the assets of the trust involved is includible as a part of the present decedent's estate for Federal estate tax purposes, under section 2033 or 2036 of the Code.