Question

Question 3 Jan funded an irrevocable trust with $3 million of dividend paying stock. She gave her husband Jeremy a life estate in the trust. The trust directs that upon Jeremy’s death the remainder will be paid to Jan, if she is living or to her daughter Esther if she is not. Jan retained a reversionary interest in the trust greater than 5% at her death. Which of the following statements is NOT correct?

A. If Jan had retained a reversionary interest of 4%, then the value of the trust would not be included in her gross estate.

B. The total FMV of the trust is included in Jan’s gross estate.

C. The value of the remainder interest is included in Jan’s gross estate.

D. Esther has a contingent interest because she cannot receive the remainder interest unless she survives Jan.

Answer 1

A. If Jan had retained a reversionary interest of 4%, then the value of the trust would not be included in her gross estate.

Reversionary interest is included in a decedent's gross estate under IRC Sec. 2037 if:

Decedent owns a reversionary interest in the property

The actuarial value of the reversionary interest immediately before the decedent's death is more than 5%

The beneficiaries must survive the decedent to receive the transferred property