Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-97

1973-1 C.B. 404

IRS Headnote

The trustee's division of the corpus of an original revocable trust into separate trusts upon the settlor's death constitutes a distribution for alternate valuation purposes;  Revenue Ruling 57-495 distinguished.

Full Text

Rev. Rul. 73-97

Advice has been requested whether a division of the corpus of a revocable trust into separate trusts upon the death of the settlor constitutes a distribution for determining the value of the property contained therein under the alternate valuation method authorized by section 2032 of the Internal Revenue Code of 1954.

During his lifetime the decedent established a revocable trust the value of which was included in his gross estate for the purpose of the Federal estate tax. He died March 15, 1971. The trust instrument provides that upon the death of the settlor, the corpus of the trust is to be divided into separate trusts, one for each of the settlor's surviving children. The income therefrom is to be paid to the designated beneficiary, and upon the beneficiary's death the corpus is to be distributed to his heirs. The settlor named a corporate trustee to administer both the original trust and the successor trusts.

Section 2032(a) of the Code provides that, for decedents dying after December 31, 1970, if the executor so elects, the value of the gross estate shall be determined as of six months after the decedent's death, except that property distributed, sold, exchanged, or otherwise disposed of, within the six-month period, shall be valued as of the date of distribution, sale, exchange, or other disposition.

Section 20.2032-1(c) of the Estate Tax Regulations defines the phrase "distributed, sold, exchanged, or otherwise disposed of," as comprehending all possible ways by which property ceases to form a part of the gross estate. Subparagraph (c)(2) of this section of the regulations provides that property is considered as "distributed" for alternate valuation purposes, upon the first to occur of (1) the entry of an order or decree of distribution, if the order or decree subsequently becomes final, (2) the segregation or separation of the property from the estate or trust so that it becomes unqualifiedly subject to the demand or disposition of the distributee, or (3) the actual paying over or delivery of the property to the distributee.

In the present case, the trust that formed a part of the decedent's gross estate ceased to exist when the terms of the trust instrument were implemented and the corpus of the original trust was transferred from that trust and delivered to the trustee of the successor trusts. This transaction comes within the terms of section 20.2032-1(c)(2)(iii) of the regulations.

It is accordingly held that when the trustee divided the corpus of the original trust into separate trusts, he effectuated a "distribution" within the meaning of section 2032 of the Code.

This is to be distinguished from the situation in Revenue Ruling 57-495, 1957-2 C.B. 616. There the instrument provided that, upon the death of the settlor, the corpus of the trust was to be divided into two equal parts and the income therefrom paid to the two beneficiaries for their joint lives, the remainder payable to others upon the death of the survivor of the income beneficiaries. Since the trust continued uninterrupted for the lives of the income beneficiaries, there was no distribution of the property within the meaning of section 2032(a) of the Code, until the last income beneficiary died. Only upon the death of the surviving income beneficiary was the trust terminated and the trust corpus distributed to those named as remaindermen.

Revenue Ruling 57-495 is hereby distinguished.