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II. Inclusion of Transferred Assets With Retained Interests in
Gross Estate Under Section 2036(a)(1)
We now focus on whether the transferred assets are
includable in the gross estate and begin by outlining a few
general principles. The Code generally imposes tax on the
transfer of the taxable estate of any decedent who is a United
States citizen or resident. Sec. 2001(a). The determination of
the taxable estate begins with the value of the gross estate,
which includes the fair market value of all property to the
extent provided in sections 2031 through 2046. Secs. 2031, 2051.
If a decedent makes an inter vivos transfer of property
(other than a bona fide sale for adequate and full consideration)
and retains certain specific rights or interests in the property
that are not relinquished until death, the full value of the
transferred property will generally be included in the decedent’s
gross estate. Sec. 2036(a). The purpose of section 2036(a) is
to include in the gross estate those transfers made during a
decedent’s life that are essentially testamentary in nature.
United States v. Estate of Grace, 395 U.S. 316, 320 (1969).
There are three requirements for the property to be included in a
decedent’s gross estate under section 2036(a). First, the
decedent must have made an inter vivos transfer of property.
Second, the decedent must have retained an interest or a right
specified in section 2036(a)(1) or (2) or (b) in the transferred
property that he or she did not relinquish until death. Finally,
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