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Retained annuity, unitrust, and

reversionary interest (defined below) in

gross estate, see the Estate Tax

other income interests in trusts. If a

the property that immediately before the

Regulations.

decedent transferred property into a

decedent’s death had a value of more

than 5% of the value of the transferred

trust and retained or reserved the right

Special Valuation Rules for

to use such property, or the right to an

property. If the transfer was made

Certain Lifetime Transfers

before October 8, 1949, the

annuity, unitrust, or other interest in

Sections 2701 through 2704 provide

reversionary interest must have arisen

such trust for the property decedent so

rules for valuing certain transfers to

by the express terms of the instrument

transferred for decedent’s life, any

family members.

of transfer.

period not ascertainable without

reference to the decedent’s death, or

Section 2701 deals with the transfer

A reversionary interest is generally

for a period that does not, in fact, end

of an interest in a corporation or

any right under which the transferred

before the decedent’s death, then the

property will or may be returned to the

partnership while retaining certain

decedent’s right to use the property or

distribution rights, or a liquidation, put,

decedent or the decedent’s estate. It

the retained annuity, unitrust, or other

call, or conversion right.

also includes the possibility that the

interest (whether payable from income

transferred property may become

Section 2702 deals with the transfer

and/or principal) is the retention of the

subject to a power of disposition by the

of an interest in a trust while retaining

possession or enjoyment of, or the right

decedent. It does not matter if the right

any interest other than a qualified

to the income from, the property for

arises by the express terms of the

interest. In general, a qualified interest

purposes of section 2036. See

instrument of transfer or by operation of

is a right to receive certain distributions

Regulations section 20.2036-1(c)(2).

law. For this purpose, reversionary

from the trust at least annually, or a

interest does not include the possibility

Retained voting rights. Transfers

noncontingent remainder interest if all

that the income alone from the property

with a retained life estate also include

of the other interests in the trust are

may return to the decedent or become

transfers of stock in a controlled

distribution rights specified in section

subject to the decedent’s power of

corporation after June 22, 1976, if the

2702.

disposition.

decedent retained or acquired voting

Section 2703 provides rules for the

5. Revocable transfers (section

rights in the stock. If the decedent

valuation of property transferred to a

2038). The gross estate includes the

retained direct or indirect voting rights

family member but subject to an option,

value of transferred property in which

in a controlled corporation, the

agreement, or other right to acquire or

the enjoyment of the transferred

decedent is considered to have

use the property at less than FMV. It

property was subject at decedent’s

retained enjoyment of the transferred

also applies to transfers subject to

death to any change through the

property. A corporation is a controlled

restrictions on the right to sell or use

exercise of a power to alter, amend,

corporation if the decedent owned

the property.

revoke, or terminate. A decedent’s

(actually or constructively) or had the

Finally, section 2704 provides that in

power to change the beneficiaries and

right (either alone or with any other

certain cases, the lapse of a voting or

to hasten or increase any beneficiary’s

person) to vote at least 20% of the total

liquidation right in a family-owned

enjoyment of the property are examples

combined voting power of all classes of

corporation or partnership will result in

of this.

stock. See section 2036(b)(2). If these

a deemed transfer.

voting rights ceased or were

It does not matter whether the power

These rules have potential

relinquished within 3 years of the

was reserved at the time of the transfer,

consequences for the valuation of

decedent’s death, the corporate

whether it arose by operation of law, or

property in an estate. If the decedent

whether it was later created or

interests are included in the gross

(or any member of his or her family)

conferred. The rule applies regardless

estate as if the decedent had actually

was involved in any such transactions,

of the source from which the power was

retained the voting rights until death.

see sections 2701 through 2704 and

acquired, and regardless of whether the

The amount includible in the gross

power was exercisable by the decedent

the related regulations for additional

estate is the value of the transferred

details.

alone or with any person (and

property at the time of the decedent’s

regardless of whether that person had

death. If the decedent kept or reserved

How To Complete Schedule

a substantial adverse interest in the

an interest or right to only a part of the

transferred property).

transferred property, the amount

The capacity in which the decedent

All transfers (other than outright

includible in the gross estate is a

could use a power has no bearing. If

transfers not in trust and bona fide

corresponding part of the entire value

the decedent gave property in trust and

sales) made by the decedent at any

of the property.

was the trustee with the power to

time during life must be reported on

A retained life estate does not have

revoke the trust, the property would be

Schedule G, regardless of whether you

to be legally enforceable. What matters

included in his or her gross estate. For

believe the transfers are subject to tax.

is that a substantial economic benefit

transfers or additions to an irrevocable

If the decedent made any transfers not

was retained. For example, if a mother

trust after October 28, 1979, the

described in these instructions, the

transferred title to her home to her

transferred property is includible if the

transfers should not be shown on

daughter but with the informal

decedent reserved the power to remove

Schedule G. Instead, attach a

understanding that she was to continue

the trustee at will and appoint another

statement describing these transfers by

living there until her death, the value of

trustee.

listing:

the home would be includible in the

•

The date of the transfer,

If the decedent relinquished within 3

mother’s estate even if the agreement

•

The amount or value of the

years of death any of the includible

would not have been legally

transferred property, and

powers described above, figure the

enforceable.

•

The type of transfer.

gross estate as if the decedent had

4. Transfers taking effect at death

actually retained the powers until death.

Complete the schedule for each

(section 2037). A transfer that takes

transfer that is included in the gross

Only the part of the transferred

effect at the decedent’s death is one

estate under sections 2035(a), 2036,

property that is subject to the

under which possession or enjoyment

2037, and 2038 as described in the

decedent’s power is included in the

can be obtained only by surviving the

Instructions for Schedule G.

gross estate.

decedent. A transfer is not treated as

one that takes effect at the decedent’s

For more detailed information on

In the “Item number” column,

death unless the decedent retained a

which transfers are includible in the

number each transfer consecutively

-21-

Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2011 Page 21

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