[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR20.2036-1]

[Page 305-306]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 20_ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954--Table of Contents
 
Sec.  20.2036-1  Transfers with retained life estate.

    (a) In general. A decedent's gross estate includes under section 
2036 the value of any interest in property transferred by the decedent 
after March 3, 1931, whether in trust or otherwise, except to the extent 
that the transfer was for an adequate and full consideration in money or 
money's worth (see Sec.  20.2043-1), if the decedent retained or 
reserved (1) for his life, or (2) for any period not ascertainable 
without reference to his death (if the transfer was made after June 6, 
1932), or (3) for any period which does not in fact end before his 
death:
    (i) The use, possession, right to the income, or other enjoyment of 
the transferred property, or

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    (ii) The right, either alone or in conjunction with any other person 
or persons, to designate the person or persons who shall possess or 
enjoy the transferred property or its income (except that, if the 
transfer was made before June 7, 1932, the right to designate must be 
retained by or reserved to the decedent alone).

If the decedent retained or reserved an interest or right with respect 
to all of the property transferred by him, the amount to be included in 
his gross estate under section 2036 is the value of the entire property, 
less only the value of any outstanding income interest which is not 
subject to the decedent's interest or right and which is actually being 
enjoyed by another person at the time of the decedent's death. If the 
decedent retained or reserved an interest or right with respect to a 
part only of the property transferred by him, the amount to be included 
in his gross estate under section 2036 is only a corresponding 
proportion of the amount described in the preceding sentence. An 
interest or right is treated as having been retained or reserved if at 
the time of the transfer there was an understanding, express, or 
implied, that the interest or right would later be conferred.
    (b) Meaning of terms. (1) A reservation by the decedent ``for any 
period not ascertainable without reference to his death'' may be 
illustrated by the following examples:
    (i) A decedent reserved the right to receive the income from 
transferred property in quarterly payments, with the proviso that no 
part of the income between the last quarterly payment and the date of 
the decedent's death was to be received by the decedent or his estate; 
and
    (ii) A decedent reserved the right to receive the income from 
transferred property after the death of another person who was in fact 
enjoying the income at the time of the decedent's death. In such a case, 
the amount to be included in the decedent's gross estate under this 
section does not include the value of the outstanding income interest of 
the other person. It may be noted that if the other person predeceased 
the decedent, the reservation by the decedent may be considered to be 
either for his life, or for a period which does not in fact end before 
his death.
    (2) The ``use, possession, right to the income, or other enjoyment 
of the transferred property'' is considered as having been retained by 
or reserved to the decedent to the extent that the use, possession, 
right to the income, or other enjoyment is to be applied toward the 
discharge of a legal obligation of the decedent, or otherwise for his 
pecuniary benefit. The term ``legal obligation'' includes a legal 
obligation to support a dependent during the decedent's lifetime.
    (3) The phrase ``right * * * to designate the person or persons who 
shall possess or enjoy the transferred property or the income 
therefrom'' includes a reserved power to designate the person or persons 
to receive the income from the transferred property, or to possess or 
enjoy nonincome-producing property, during the decedent's life or during 
any other period described in paragraph (a) of this section. With 
respect to such a power, it is immaterial (i) whether the power was 
exercisable alone or only in conjunction with another person or persons, 
whether or not having an adverse interest; (ii) in what capacity the 
power was exercisable by the decedent or by another person or persons in 
conjunction with the decedent; and (iii) whether the exercise of the 
power was subject to a contingency beyond the decedent's control which 
did not occur before his death (e.g., the death of another person during 
the decedent's lifetime). The phrase, however, does not include a power 
over the transferred property itself which does not affect the enjoyment 
of the income received or earned during the decedent's life. (See, 
however, section 2038 for the inclusion of property in the gross estate 
on account of such a power.) Nor does the phrase apply to a power held 
solely by a person other than the decedent. But, for example, if the 
decedent reserved the unrestricted power to remove or discharge a 
trustee at any time and appoint himself as trustee, the decedent is 
considered as having the powers of the trustee.

[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6501, 25 FR 
10869, Nov. 16, 1960]

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