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gross estate (Examples 1–3; see also decedent dies on or after the publica- adjustments. It is also assumed that the
Rev. Rul. 84-25). tion date of April 27, 2022. It is worth donor’s executor does not elect to use the
(C) Gifts with a retained interest noting that any completed gifts that alternate valuation date, and, unless oth-
within the meaning of Regs. are ultimately included in a decedent’s erwise stated, the donor never married
Secs. 25.2701-5(a)(4) and 25.2702- gross estate would also be removed and made no other gifts during life.
6(a)(1). Sec. 2701 deals with special from the adjusted taxable gifts reported Example 1: The example deals with
valuation rules for transfers of on Form 706, United States Estate (and a situation where individual A gifts a
certain interests in partnerships and Generation-Skipping Transfer) Tax $9 million promissory note to another
corporations to “applicable fam- Return, at the value on the date of individual during the TCJA period, and
ily members,” and Sec. 2702 deals transfer under Sec. 2001(b)(2). the full principal balance of the note
with special valuation rules for the The following is a list of the Code remains unpaid at A’s death after the
transfer of interests in trusts. No ex- sections referenced under Regs. Sec. TCJA period ends on Dec. 31, 2025.
amples are provided in the proposed 20.2010-1(c)(3)(i)(A) where the Since the payment of the note would be
regulations. transfer would be excepted from the satisfied with other assets of the estate,
(D) Transfers that would fall under special rule and included in the above the initial gift is disregarded, and the
Prop. Regs. Sec. 20.2010-1(c)(3) carveout provisions: note’s value is includible in the gross
(i)(A), (B), or (C) above were it ■ Sec. 2035, Adjustments for certain estate. (Effectively, the liability under
not for the transfer, elimination, gifts made within three years of the note is ignored on Form 706, and
or relinquishment of the interest decedent’s death; the assets that would ultimately fund
or power that would have caused ■ Sec. 2036, Transfers with retained the note repayment are included at full
inclusion in the gross estate within life estate; value.) This situation would meet the
18 months prior to the donor’s date ■ Sec. 2037, Transfers taking effect “Type B” exception to the special rule
of death. This includes transactions at death; listed above, and as such, the BEA of
executed by a third party (refer- ■ Sec. 2038, Revocable transfers; and only $6.8 million available at death
enced in Example 1 of the proposed ■ Sec. 2042, Proceeds of life insurance. could be used to offset that $9 million
regulations). Further, under Sec. 2038(a)(1), the in assets.
The special rule will continue to value of the gross estate includes the Example 2: This example adjusts the
apply to the transfers listed above when: value of all property to the extent of any first example by reducing A’s note to $2
■ The taxable amount of the gift is not interest therein of which the decedent million and adding in another $9 million
material. This is determined at the has at any time made a transfer (except cash gift on the same date the note was
date of transfer and applies when the for adequate and full consideration in gifted. This is a fairly straightforward
taxable amount is 5% or less of the money or money’s worth), by trust or extension of the first example in that the
total amount of the transfer. Example otherwise, where the enjoyment thereof $2 million note gift would essentially be
4 of the proposed regulations ad- was subject at the date of death to any ignored on the Form 706 filing, and A’s
dresses this de minimis scenario. change through the exercise of a power executor would be able to use the special
■ The transfer, elimination, or by the decedent (alone or with another rule to claim $9 million of BEA on the
relinquishment, within 18 months person) to alter, amend, revoke, or termi- Form 706 related to the completed gift
of the donor’s date of death, was nate that property transfer. of $9 million in cash during the TCJA
included in the original instrument period.
of transfer, whether by death or Examples Example 4: This example switches
lapse of time. (This would be the The proposed regulations include several the facts, with individual B transferring
case with a grantor retained annuity examples that are helpful in understand- $9 million in assets to a GRAT with
trust (GRAT) or a qualified personal ing these exceptions to the special rule the retained qualified annuity interest
residence trust (QPRT) where the (Prop. Regs. Secs. 20.2010-1(c)(3)(iii) calculated at $8.55 million and, as such,
trust has a fixed term and should (A) through (G)). The most relevant a taxable gift value of $450,000 at the
not be subject to the exception examples are outlined below. As the time of transfer. (This is a “Type A”
to the special rule simply because proposed regulations indicate, in each exception to the special rule.) Individual
the grantor dies within 18 months example, the BEA on the date of the B then died during the GRAT term,
following that fixed term.) gift was $11.4 million, the BEA on the resulting in the recapture of the entire
Note that the proposed regula- date of death is $6.8 million, and both GRAT corpus in B’s gross estate under
tions would apply to estates where the amounts include hypothetical inflation Regs. Sec. 20.2036-1(c)(2). The example

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