Special valuation rules in case of transfers of interests in trusts

Source Credit

(a) Valuation rules
(1) In general
Solely for purposes of determining whether a transfer of an interest in trust to (or for the benefit of) a member of the transferor's family is a gift (and the value of such transfer), the value of any interest in such trust retained by the transferor or any applicable family member (as defined in section 2701(e)(2)) shall be determined as provided in paragraph (2).
(2) Valuation of retained interests
(A) In general
The value of any retained interest which is not a qualified interest shall be treated as being zero.
(B) Valuation of qualified interest
The value of any retained interest which is a qualified interest shall be determined under section 7520.
(3) Exceptions
(A) In general
This subsection shall not apply to any transfer—
(i) if such transfer is an incomplete gift,
(ii) if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal residence by persons holding term interests in such trust, or
(iii) to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section.
(B) Incomplete gift
For purposes of subparagraph (A), the term "incomplete gift" means any transfer which would not be treated as a gift whether or not consideration was received for such transfer.
(b) Qualified interest
For purposes of this section, the term "qualified interest" means—
(1) any interest which consists of the right to receive fixed amounts payable not less frequently than annually,
(2) any interest which consists of the right to receive amounts which are payable not less frequently than annually and are a fixed percentage of the fair market value of the property in the trust (determined annually), and
(3) any noncontingent remainder interest if all of the other interests in the trust consist of interests described in paragraph (1) or (2).
(c) Certain property treated as held in trust
For purposes of this section—
(1) In general
The transfer of an interest in property with respect to which there is 1 or more term interests shall be treated as a transfer of an interest in a trust.
(2) Joint purchases
If 2 or more members of the same family acquire interests in any property described in paragraph (1) in the same transaction (or a series of related transactions), the person (or persons) acquiring the term interests in such property shall be treated as having acquired the entire property and then transferred to the other persons the interests acquired by such other persons in the transaction (or series of transactions). Such transfer shall be treated as made in exchange for the consideration (if any) provided by such other persons for the acquisition of their interests in such property.
(3) Term interest
The term "term interest" means—
(A) a life interest in property, or
(B) an interest in property for a term of years.
(4) Valuation rule for certain term interests
If the nonexercise of rights under a term interest in tangible property would not have a substantial effect on the valuation of the remainder interest in such property—
(A) subparagraph (A) of subsection (a)(2) shall not apply to such term interest, and
(B) the value of such term interest for purposes of applying subsection (a)(1) shall be the amount which the holder of the term interest establishes as the amount for which such interest could be sold to an unrelated third party.
(d) Treatment of transfers of interests in portion of trust
In the case of a transfer of an income or remainder interest with respect to a specified portion of the property in a trust, only such portion shall be taken into account in applying this section to such transfer.
(e) Member of the family
For purposes of this section, the term "member of the family" shall have the meaning given such term by section 2704(c)(2).

History

(Added Pub. L. 101–508, title XI, §11602(a), Nov. 5, 1990, 104 Stat. 1388–497; amended Pub. L. 104–188, title I, §1702(f)(11), Aug. 20, 1996, 110 Stat. 1872.)

Editorial Notes

Editorial Notes

Amendments
1996—Subsec. (a)(3)(A)(i). Pub. L. 104–188, §1702(f)(11)(A)(i), (ii), (B)(i), substituted "if" for "to the extent" and "incomplete gift" for "incomplete transfer", and struck out "or" at end.
Subsec. (a)(3)(A)(ii). Pub. L. 104–188, §1702(f)(11)(A)(iii), substituted ", or" for period at end.
Subsec. (a)(3)(A)(iii). Pub. L. 104–188, §1702(f)(11)(A)(iv), added cl. (iii).
Subsec. (a)(3)(B). Pub. L. 104–188, §1702(f)(11)(B), substituted "incomplete gift" for "incomplete transfer" in heading and text.

Statutory Notes and Related Subsidiaries

Effective Date of 1996 Amendment
Amendment by Pub. L. 104–188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104–188, set out as a note under section 38 of this title.