Terminally ill donor's disclaimed life estates valued with special factor

Plain-English summary

An income beneficiary disclaimed life estates in three trusts while in hospice care with a medical prognosis of at least a 50-percent probability of death within one year. She died five days later, and the disclaimers constituted completed gifts to the remainder owners. Because she was terminally ill when the gifts were completed, the standard section 7520 mortality component could not be used. The IRS supplied a special actuarial factor of .00043 for valuing the disclaimed life estate interests.

Ruling snapshot

• Question: What actuarial factor applied to gifts resulting from a terminally ill beneficiary's disclaimers of three life estates?
• Outcome: A special actuarial factor of .00043 was approved.
• Key authorities: Treas. Reg. §§ 25.2512-5 and 25.7520-1 through 25.7520-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201928003                                             Third Party Communication: None
Release Date: 7/12/2019                                       Date of Communication: Not Applicable
Index Number: 2512.00-00, 7520.00-00,
              7520.02-00                                      Person To Contact:
                                                              -------------------------, ID No. -----------------
--------------------------------------------------------      ---------------------------------------------------
----------------------------------                            Telephone Number:
-------------------------------------                         --------------------
--------------------                                          Refer Reply To:
---------------------------                                   CC:PSI:B04
 -----------------------------                                PLR-123430-18
                                                              Date:
                                                              March 28, 2019




         RE: -------------------------------------



Legend:

Taxpayer                   = ----------------------------------------------------
Date 1                     = ---------------------
Date 2                     = ------------------
Date 3                     = ------------------


Dear -----------------------------------------:

This responds to your authorized representative's letter of July 26, 2018, requesting a
special actuarial factor to be used to value certain gifts made by Taxpayer during her
lifetime.

The facts and representations are as follows: Taxpayer was born on Date 1. Taxpayer
is the income beneficiary of three trusts. On Date 2, Taxpayer utilized the disclaimer
provisions expressly provided in the three trusts and disclaimed her life estates. At the
time Taxpayer disclaimed, Taxpayer had been medically diagnosed as suffering from
cancer and was in hospice care. Taxpayer's medical prognosis was that she was
terminally ill and that there was at least a fifty percent probability that Taxpayer would
die within one year of Date 2. Taxpayer died five days later, Date 3.

The representatives of Taxpayer's estate now request a ruling pursuant to
§ 25.2512-5(d) (4) of the Gift Tax Regulations and § 25.7520-3(b)(3) of the Procedure
and Administration Regulations for the applicable actuarial factor to be used in valuing
the Date 2 disclaimers of the life estate interests.

PLR-123430-18                                  2

Section 25.2512-5(a) generally provides that except as otherwise provided in
§ 25.2512-5(b) and § 25.7520-3(b), the fair market value of annuities, unitrust interests,
life estates, terms of years, remainders, and reversions transferred by gift, is the present
value of the interests determined under § 25.2512-5(d).

Section 25.2512-5(d)(1) provides that if the valuation date for the gift is after April 30,
1999, the fair market value of annuities, life estates, terms of years, remainders, and
reversions transferred after April 30, 1999, is the present value of such interest
determined under § 25.2512-5(d)(2) and by use of standard or special § 7520 actuarial
factors.

Section 25.2512-5(d)(2)(iii) provides generally that if the interest to be valued is the right
of a person to receive the income of certain property, or to use certain
nonincome-producing property, for a term of years or for the life of one individual, the
present value of the interest is computed by multiplying the value of the property by the
appropriate term-of-years or life interest actuarial factor (that corresponds to the
applicable § 7520 interest rate and term-of-years or life interest period).

Section 25.2512-5(d)(4) provides that if a special actuarial factor is required, the Service
may furnish the factor to the donor upon a request for a ruling. The request for a ruling
must be accompanied by a recitation of the facts including a statement of the date of
birth for each measuring life, the date of the gift, any other applicable facts, and a copy
of the will, trust, or other relevant documents.

Section 25.7520-1(a)(1) provides that except as otherwise provided in this section and
§ 25.7520-3 (relating to exceptions to the use of prescribed tables under certain
circumstances), in the case of gifts made after April 30, 1999, the fair market value of
annuities, interests for life or for a term of years (including unitrust interests),
remainders, and reversions is their present value determined under this section.

Section 25.7520-1(b) provides generally that valuation under § 7520 consists of an
interest rate component and a mortality component.

Section 25.7520-3(b)(3) provides that except as provided in § 25.7520-3(b)(3)(ii), the
mortality component prescribed under § 7520 may not be used to determine the present
value of an annuity, income interest, remainder interest, or reversionary interest if an
individual who is a measuring life dies or is terminally ill at the time the gift is completed.
For purposes of this paragraph, an individual who is known to have an incurable illness
or other deteriorating physical condition is considered terminally ill if there is at least a
50 percent probability that the individual will die within 1 year. However, if the individual
survives for eighteen months or longer after the date the gift is completed, that
individual shall be presumed to have not been terminally ill at the date the gift was
completed unless the contrary is established by clear and convincing evidence.

PLR-123430-18                                  3

In the present case, Taxpayer disclaimed her life estate interests in three trusts on Date

2. The disclaimer constituted completed gifts to the owners of the remainder interests in
the trusts. At the time the gifts were made, Taxpayer had been diagnosed as being
terminally ill with at least a fifty percent probability that she would die within one year of
Date 2. Taxpayer died on Date 3. Because Taxpayer was terminally ill within the
meaning of § 25.7520-3(b)(3) at the time of the Date 2 gifts, the mortality component
prescribed under § 7520 for ordinary life estate interests may not be used to determine
the present value of the life estate interests dislcaimed by Taxpayer on Date 2. Thus,
an actuarial factor of .00043 must be used in valuing the gifts.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.


                                       Sincerely,


                                       Leslie H. Finlow
                                       Leslie H. Finlow
                                       Senior Technician Reviewer, Branch 4
                                       Office of Associate Chief Counsel
                                       (Passthroughs & Special Industries)



Enclosures (2)
Copy of this letter
Copy for § 6110 purposes