Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 71-51

1971-1 C.B. 274

IRS Headnote

Jointly owned property, restricted by a joint and mutual will as to its ultimate distribution, and life insurance proceeds passing to a surviving wife qualify for the marital deduction and the total value thereof is includible in her gross estate.

Full Text

Rev. Rul. 71-51

Advice has been requested as to the treatment, for Federal estate tax purposes, of jointly owned property and the proceeds of life insurance under the circumstances described below.

A husband and wife owned certain property as joint tenants. The husband owned several insurance policies on his life in which his wife was designated beneficiary. In 1955 they executed a joint, mutual, and contractual will that provided that all property, real as well as personal, of whatever kind and wherever situated at the time of the death of either, was to be held by the survivor during his or her life with the right to the income therefrom for life. Upon the death of the survivor, the remainder interest in the property was to be distributed to their children.

In 1964 the husband died. His gross estate consisted mainly of the aforementioned jointly held property and the proceeds of the policies of insurance.

The surviving wife died in 1968. The property originally held jointly with her husband and the insurance proceeds remained substantially intact and were distributed to the children as required by the terms of the joint and mutual will.

The following specific questions arose.

Question 1. In view of the outstanding joint and mutual will, does the interest in property that passed to the surviving wife upon the death of her husband qualify for the marital deduction?

Question 2. Is the value of property originally held jointly with her husband and the value of the proceeds of the insurance on his life includable in the deceased wife's gross estate?

Section 2036(a) of the Internal Revenue Code of 1954 provides that the value of the gross estate shall include the value of all property to the extent of any interest therein transferred by the decedent without consideration, by trust or otherwise, under which he has retained for his life the possession or enjoyment of, or the right to the income from the property.

Section 2056(a) of the Code provides that in determining the value of the taxable estate for Federal estate tax purposes a marital deduction shall be allowed from the value of the gross estate in an amount equal to the value of any interest which passes or has passed from the decedent to his surviving spouse, subject to certain conditions and limitations. Section 2056(b) of the Code provides, however, that if the interest passing to the surviving spouse is a "terminable interest," no deduction shall be allowed for such interest. Section 2056(e)(5) of the Code provides that property interests devolving upon the surviving spouse as surviving coowner with the decedent under any form of joint ownership under which the right of survivorship existed are considered as passing from the decedent to his surviving spouse.

Under the general rule relating to joint tenancies, a joint tenant who survives does not take the interest of the other tenant from him as his successor, but takes it by right under the instrument by which the tenancy was created. Thus, joint tenancy property passes outside of a will even though the interest that vests in the surviving tenant is limited by the terms of the instrument. Similarly, the proceeds of life insurance pass to the named beneficiary by reason of the designation in the insurance contract and no under the will or pursuant to any contractual provision in the will. Any restriction limiting the surviving tenant's (beneficiary's) interest to a life estate is not placed on the property by the decedent, but arises out of the contract voluntarily entered into by the survivor. Estate of Emmet Awtry v. Commissioner, 221 F. 2d 749 (1955), W. R. McLean v. United States, 224 F. Supp. 726, affirmed, 15 AFTR 1355, 65-2 USTC 12,326 (1965), and United States v. La Rue Ford, 377 F. 2d 93 (1967).

Accordingly, it is held in answer to Question 1 that complete ownership of the jointly held property and the proceeds of insurance passed from the decedent to the surviving wife within the meaning of 2056(e) of the Code. Such complete ownership is a non-terminable interest that qualifies for the marital deduction under section 2056(a) of the Code notwithstanding that such property is subject to the restriction of the joint and mutual will as to its ultimate distribution.

The surviving wife's survivorship interest in the jointly held property and the insurance proceeds ripened into absolute ownership upon the death of her husband. However, under the contractual aspects of the joint and mutual will that were irrevocable at the death of the husband, the wife's fee interest in the property was reduced to a life estate, the remainder interest passing to the children. Thus, the wife is deemed to have made a transfer in 1964 of the entire value of the property, under which she retained for her life the right to the income from the property.

Accordingly, it is held in answer to Question 2 that the entire value of the remainder of the property held jointly with her husband and the proceeds of insurance on his life is includible in the deceased wife's gross estate under section 2036 of the Code.