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and thus included in the gross estate
rather than in adjusted taxable gifts.
The preamble to the new proposed The new proposed regulations generally
would apply present-value principles
regulations explains that the special
rule is designed to ensure that bona fide consistently to expenses and claims without
inter vivos property transfers are con-
regard to whether they are contingent.
sistently treated as gifts for purposes of
gift and estate tax. The preamble points
to a subset of includible gifts — gifts
made during the increased BEA period
that are essentially testamentary but are promise remains unsatisfied at the Estate debts and expenses
deductible for gift tax purposes due to date of death; On June 24, 2022, Treasury and the
the charitable or marital deduction — 3. Transfers that were subject to Secs. IRS released proposed regulations12
to which the special rule does not apply. 2701 (regarding special valuation under Sec. 2053 that provide guidance
Inconsistent gift or estate tax treatment rules of certain transfers of interests on the proper use of present-value
will not occur with these gifts because in partnerships and corporations) principles in determining the amount
no credits allocable to the gifts would and 2702 (regarding the transfer of an estate may deduct for funeral ex-
be attributable to the BEA when income interests in a trust); and penses, administration expenses, and
computing gift tax payable under Sec. 4. Transfers that would have been certain claims against the estate. In
2001(b)(2). With no BEA applicable to included in 1, 2, or 3 but for the addition, the proposed regulations
the deductible gifts, the increase or de- elimination of that transfer from the address the deductibility of certain
crease of the BEA is of no consequence. gross estate within 18 months of the types of interest expense as well as
Given that the Code treats certain death of the transferor. amounts paid under a decedent’s per-
transfers as testamentary transfers When published in final form, the sonal guaranty.
rather than adjusted taxable gifts, regulations will apply to estates of
the preamble states that it would be decedents dying on or after April 27, Background
inappropriate to apply the special rule 2022, the date the proposed regula- The value of a decedent’s gross estate,
to includible gifts, particularly if the tions were published in the Federal less deductions under Secs. 2053
transferor retained some right to the Register. If the BEA decreases before through 2058, is generally the tax-
transferred property. To prevent this final regulations are issued, the excep- able estate that is subject to estate tax
result, the proposed regulations provide tion to the special rule contained in under Sec. 2001. Final regulations13 is-
an exception to the special rule. the proposed regulations will apply to sued under Sec. 2053 in October 2009
Specifically, Prop. Regs. Sec. estates of decedents dying on or after (the 2009 final regulations) generally
20.2010-1(c)(3) would provide an ex- April 27, 2022. limit an estate’s deduction for claims
ception to the special rule for transfers The proposed regulations should and expenses to the amount actually
that are includible in the gross estate or not negatively affect a completed gift paid to settle a debt or other claim.
treated as includible in the gross estate that does not involve a retained inter- A section of the 2009 final regula-
for Sec. 2001(b) purposes, including: est. If, however, a donor has made tions14 was reserved for future guid-
1. Transfers subject to a life estate or gifts of assets that may have some ance on how present-value principles
other powers or interests described potential estate tax exposure (e.g., should be applied in determining the
in Secs. 2035 through 2038 and interests in family limited partnerships amount the estate may deduct under
2042, regardless of whether the or a limited liability company under Sec. 2053. The new proposed regula-
transfer was deductible under Sec. Sec. 2036), the proposed regulations tions represent that guidance.
2522 or 2523; could present a risk of the estate’s The proposed regulations also
2. Transfers made by an enforceable receiving the benefit of only the lower provide or clarify rules under Sec.
promise to pay, to the extent the BEA at death. 2053 on:

12. REG-130975-08. 14. Regs. Sec. 20.2053-1(d)(6).
13. T.D. 9468.

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