Oct 1, 2011 12:00 PM

Historical perspectives and modern defenses

By Dennis I. Leonard & Alison Merino

For estate tax purposes, Internal Revenue Code Section 2036(a) includes in a decedent's gross estate the value of certain property transferred during life.¹ IRC Section 2036 generally applies when a taxpayer retains rights to the property transferred, the property's income² or the right to designate others who can receive the rights to the property or its income.³ The Internal Revenue Service frequently uses Section 2036 to include in a taxpayer's gross estate property that was transferred to legal entities — traditionally irrevocable trusts,⁴ but especially family limited partnerships⁵ and limited liability companies⁶ (collectively FLPs).

Section 2036 also applies to property transfers resulting in a tenancy in common (TIC), though it's construed more narrowly for two reasons. First, TIC owners have historically enjoyed unique state law property rights that form the basis of defense against Section 2036 inclusion. Second, in the 2010 case of Stewart v. Commissioner,⁷ the U.S. Court of Appeals for the Second Circuit held that if Section 2036 applies to TIC interests in real property at all, it only applies in proportion to the net economic benefit retained. These two factors make assessing and defending Section 2036 risks in a TIC context somewhat different from controversies involving FLPs.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

Click here to download the 2011 Trust Glossary

50 Years Ago This Month

Click here to read the issue.

50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

Click here to view the most up to date guide (September 2011)

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