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the executors, no part of the trust corpus was includable in the
decedent's gross estate because the sale of the income interest
was for adequate and full consideration. After the District
Court agreed with the executors' position, the Court of Appeals
for the Tenth Circuit reversed. According to the Court of
Appeals:
Our narrow question is thus whether the corpus of
a reserved life estate is removed, for federal estate
tax purposes, from a decedent's gross estate by a
transfer at the value of such reserved life estate. In
other words, must the consideration be paid for the
interest transferred, or for the interest which would
otherwise be included in the gross estate? [Id. at
917.]
In holding that the consideration must be paid for the interest
that would otherwise be includable in the gross estate, the Court
of Appeals first acknowledged the well-settled principle that a
taxpayer may reduce his or her tax liability through any
permissible means. The Court of Appeals then found, however,
that the decedent's transaction was not a permissible means under
this principle. The court stated:
It does not seem plausible, however, that Congress
intended to allow such an easy avoidance of the taxable
incidence befalling reserved life estates. This result
would allow a taxpayer to reap the benefits of property
for his lifetime and, in contemplation of death, sell
only the interest entitling him to the income, thereby
removing all of the property which he has enjoyed from
his gross estate. Giving the statute a reasonable
interpretation, we cannot believe this to be its
intendment. It seems certain that in a situation like
this, Congress meant the estate to include the corpus
of the trust or, in its stead, an amount equal in
value. [Id. at 918; citations omitted.]
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