Rev. Rul. 75-408

Advice has been requested whether the exclusion from the gross estate provided in section 2039(c) of the Internal Revenue Code of 1954 applies to the survivorship annuity payable under the Teacher Retirement System of Texas. Advice is also requested as to the amount of the decedent's contributions for purposes of section 2039(c) where the decedent's contributions were from community funds.

The decedent was a retired professor of a Texas university and a member of the Teacher Retirement System. Before retirement, the decedent had made regular contributions to the university's retirement program, all such contributions being made from community funds. As of September 1, 1969, the Teacher Retirement System of Texas met the requirements of section 401(a) of the Code.

Immediately upon retirement in 1971, the decedent became entitled to a monthly benefit payable for life. At the date of decedent's death in 1973, the decedent's surviving spouse became entitled to a monthly benefit payable for life or until remarriage. At the time of the decedent's retirement, the total value of the benefits payable was 100x dollars. Of this amount, 16x dollars was attributable to the decedent's contributions from community funds.

Section 2039(c) of the Code provides that there shall be excluded from the gross estate the value of an annuity or other payment receivable by any beneficiary (other than the executor) under "an employees' trust * * * forming part of a pension * * * plan which at the time of the decedent's separation from employment (whether by death or otherwise), * * * met the requirements of section 401(a)" except that "if such amounts * * * are attributable to any extent to payments or contributions made by the decedent, no exclusion shall be allowed for that part of the value of such amounts in the proportion that the total payments or contributions made by the decedent bears to the total payments or contributions made." For the purposes of subsection (c), contributions made by the decedent's employer shall not be considered to be contributed by the decedent.

Section 20.2039-2(c) of the Estate Tax Regulations provides that the amount to be excluded from a decedent's gross estate under section 2039(c) of the Code is an amount which bears the same ratio to the value at the decedent's death of the annuity or other payment receivable by the beneficiary as the employer's contribution on the employee's account to the plan bears to the total contributions on the employee's account to the plan. Thus, the includible amount of any benefit payable to any beneficiary, other than decedent's estate, under a qualified employee's plan is limited to that portion of the benefit that is attributable to decedent's contribution.

Accordingly, since the Teacher Retirement System of Texas met the requirements of section 401(a) of the Code at the date of decedent's retirement, the exclusion provisions of section 2039(c) apply to the benefits payable to decedent's surviving spouse under the System. Further, since the decedent-employee's contributions to the plan were made from community funds, only one-half of the proportionate part of the benefits payable that are attributable to the decedent's contributions (determined pursuant to the apportionment formula set out in section 2039(c) of the Code and section 20.2039-2(c) of the regulations) is includible in the decedent's gross estate.