Contingencies and the Estate Tax

60 Pages Posted: 8 Oct 2008

See all articles by Wendy C. Gerzog

Wendy C. Gerzog

University of Baltimore - School of Law

Date Written: October 8, 2008

Abstract

If decedent can possess property on the happening of an event that has not occurred at his death, should that contingent property interest, properly discounted to reflect that risk, be included in his estate? If decedent's death extinguishes a contingent interest that he created, should anything be included in his estate to reflect the testamentary nature of the transfer? Should a different rule apply where the decedent has created a contingency for non-tax reasons? How should remote contingencies be taxed?

The article, Contingencies and the Estate Tax, reviews the current treatment of contingent interests for estate tax purposes. That treatment varies according to what Code section is applicable and varies in terms of rules dictated by the statute, regulations, and the courts. Under different estate tax Code sections, contingent interests, alternatively, are included in decedent's estate at the full value of the property without regard to the contingent nature of decedent's interest, are excluded altogether, or are included at a discounted value to reflect risk of loss or nonpossession.

The article suggests two rules be applied to taxing contingent interests and powers in decedent's estate. First, contingent interests created by third parties should be taxed at a value that reflects the risk of loss or non-possession (a mathematical rule). Second, in order to encourage simple, completed transfers, decedent-created and retained contingent powers and interests should cause the full value of the property to be included in decedent's estate. These decedent-imposed contingencies complicate a transfer tax system and invite abuse. Under either rule, but particularly under the second rule, de minimis exceptions should be eliminated.

Suggested Citation

Gerzog, Wendy C., Contingencies and the Estate Tax (October 8, 2008). Florida Tax Review, Vol. 5, No. 2, 2001. Available at SSRN: https://ssrn.com/abstract=1280997

Wendy C. Gerzog (Contact Author)

University of Baltimore - School of Law ( email )

1420 N. Charles Street
Baltimore, MD 21218
United States
410-837-4522 (Phone)

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