Rev. Proc. 64-19

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to state the position of the Internal Revenue Service relative to allowance of the marital deduction in cases where there is some uncertainty as to the ultimate distribution to be made in payment of a pecuniary bequest or transfer in trust where the governing instrument provides that the executor or trustee may satisfy bequests in kind with assets at their value as finally determined for Federal estate tax purposes.

SEC. 2. BACKGROUND.

.01 The Internal Revenue Service has received inquiries concerning the amount of the marital deduction which should be allowed for a pecuniary bequest in a will or for a transfer in trust of a pecuniary amount where the governing instrument not only provides that the executor or trustee may, or is required to, select assets in kind to satisfy the bequest or transfer, but also provides that any assets distributed in kind shall be valued at their values as finally determined for Federal estate tax purposes. The question is the same whether the amount of the bequest or transfer is determined by a formula fixing it by reference to the adjusted gross estate of the decedent as finally determined for Federal estate tax purposes, or its amount is determined in some other fashion by which a fixed dollar amount distributable to the surviving spouse can be computed. Any bequest or transfer in trust described in subsection 2.01 is hereinafter referred to as a `pecuniary bequest or transfer' for purposes of this Revenue Procedure.

.02 Where, by virtue of the duties imposed on the fiduciary either by applicable state law or by the express or implied provisions of the instrument, it is clear that the fiduciary, in order to implement such a bequest or transfer, must distribute assets, including cash, having an aggregate fair market value at the date, or dates, of distribution amounting to no less than the amount of the pecuniary bequest or transfer, as finally determined for Federal estate tax purposes, the marital deduction may be allowed in the full amount of the pecuniary bequest or transfer in trust. Alternatively, where, by virtue of such duties, it is clear that the fiduciary must distribute assets, including cash, fairly representative of appreciation or depreciation in the value of all property thus available for distribution in satisfaction of such pecuniary bequest or transfer, the marital deduction is equally determinable and may be allowed in the full amount of the pecuniary bequest or transfer in trust passing to the surviving spouse.

.03 In many instances, however, by virtue of the provisions of the will or trust, or by virtue of applicable state law (or because of an absence of applicable state decisions), it may not be clear that the discretion of the fiduciary would be limited in this respect, and it cannot be determined that he would be required to make distribution in conformance with one or the other of the above requirements or that one rather than the other is applicable. In such a case, the interest in property passing from the decedent to his surviving spouse would not be ascertainable as of the date of death, if the property available for distribution included assets which might fluctuate in value.

SEC. 3. INSTRUCTIONS TO TAXPAYERS AND SERVICE PERSONNEL.

.01 In cases where it is not clear on the record available that the discretion of the executor would be limited, as set forth in section 2.02, the marital deduction may nevertheless be allowed for the value of such a pecuniary bequest or transfer in trust, under an instrument executed prior to October 1, 1964, if the Internal Revenue Service receives appropriate agreements from the fiduciary and the surviving spouse that the assets of the estate, both cash and other property, available for distribution will be so distributed between the marital deduction bequest or transfer in trust and the balance of the estate available for distribution in satisfaction of such pecuniary bequest or transfer that the cash and other property distributed in satisfaction of the marital deduction pecuniary bequest or transfer in trust will be fairly representative of the net appreciation or depreciation in the value of the available property on the date or dates of distribution. The execution and performance of such an agreement will not constitute a gift.

.02 If the fiduciary fails to make distribution in accordance with the agreements executed pursuant to the preceding paragraph, and the value of the assets distributed to satisfy the marital bequest or transfer in trust is less than the amount required by such agreements, the surviving spouse will be considered to have made a gift or gifts to the beneficiaries in whose favor the failure occurs, as of the date, or dates, of distribution, unless the surviving spouse, when apprised of the situation, promptly objects and takes those steps appropriate under applicable state law to rectify it.

SEC. 4. SCOPE.

.01 The problem here considered is restricted to the situation involving bequests and transfers in trust described in sections 1 and 2.01. It does not arise in other cases, for example:

(1) In a bequest or transfer in trust of a fractional share of the estate, under which each beneficiary shares proportionately in the appreciation or depreciation in the value of assets to the date, or dates, of distribution.

(2) In a bequest or transfer in trust of specific assets.

(3) In a pecuniary bequest or transfer in trust, whether in a stated amount or an amount computed by the use of a formula, if:

(a) The fiduciary must satisfy the pecuniary bequest or transfer in trust solely in cash, or

(b) The fiduciary has no discretion in the selection of the assets to be distributed in kind, or

(c) Assets selected by the fiduciary to be distributed in kind in satisfaction of the bequest or transfer in trust are required to be valued at their respective values on the date, or dates, of their distribution.

.02 This Revenue Procedure does not relate to any issue arising under the income tax provisions of the Internal Revenue Code.

SEC. 5. FORM OF AGREEMENTS.

.01 By Surviving Spouse.

In the event of the allowance by or on behalf of the Commissioner of Internal Revenue of a marital deduction for a pecuniary bequest or transfer in trust to me or on my behalf of $ _ _ , claimed in connection with the settlement of the Federal estate tax liability of the estate of _ _ , and as part of the consideration for this settlement, I hereby agree that in the event cash and other property accepted in full satisfaction of this bequest or transfer in trust is not fairly representative of my proportionate share of any net appreciation in the value, to the date or dates of distribution, of all property then available for distribution in satisfaction of such pecuniary bequest or transfer, the difference in value will be treated as a transfer or transfers by gift as of the date, or dates, of distribution, and a Federal gift tax return or returns with respect to such transfer or transfers by gift will be filed if required under the gift tax provisions of the Internal Revenue Code.

_ _ , Surviving

Spouse of _ _

.02 By Executor or Trustee.

In the event of the allowance by or on behalf of the Commissioner of Internal Revenue of a marital deduction for a pecuniary bequest or transfer in trust of $ _ 07r _ claimed in connection with the settlement of the Federal estate tax liability of the estate of _ _ , and as part of the consideration for this settlement, I hereby agree that the assets to be distributed in satisfaction of this bequest or transfer in trust will be selected in such manner that the cash and other property distributed will have an aggregate fair market value fairly representative of the pecuniary legatee's (or transferee's) proportionate share of the appreciation or depreciation in the value to the date, or dates, of distribution of all property then available for distribution in satisfaction of such pecuniary bequest or transfer. I further agree that, within six months after the final distribution of cash and other property in satisfaction of the marital deduction pecuniary bequest or transfer in trust, I will file with the District Director of Internal Revenue, at _ _ , _ _ , a schedule showing the cash and other property distributed in satisfaction of the marital deduction pecuniary bequest or transfer in trust subsequent to the date of this agreement, the cash and other property available for distribution in satisfaction of the marital deduction pecuniary bequest or transfer at each date of distribution, and the fair market value of each such asset at each date of distribution.

_ _ Trustee, or

Executor of the Will of

_ _

¹ Also released as Technical Information Release 553, dated March 19, 1964.