Revenue Ruling 66-86 Section 2036 Does Not Apply to Life Copyright © 2017 Andrew Mitchel LLC Interest In Trust For Inherited International Tax Attorneys www.andrewmitchel.com Death of Decedent's Husband (Creation of Usufruct) Transfers to Trust Ending Point

1 2 3 Decedent's Decedent Decedent Decedent Husband'sHusband's Husband'sHusband's Husband'sHusband's Husband (Wife) Mother & (Wife) Mother & (Wife) Mother & (NRA) (NRA) Mother & (NRA) Mother & (NRA) Mother & SisterSister SisterSister Contributions SisterSister of usufruct & Income 3/4 usufruct for life 1/4 of shares outright interest Remainder & usufruct in 3/4 1/4 3/4 into trust 1/4 of shares remainder Trust Remainder interest Corp Corp Trust (U.S.) in 3/4 of shares (U.S.) 3/4

Corp (U.S.)

The decedent's (wife’s) former husband died intestate in 1930, a citizen and resident of Switzerland. At the time of his death, his in the U.S. consisted of shares of stock in a U.S. corporation. The husband was survived by the decedent (wife), his mother, and a sister. Under the of Descent and Distribution of Switzerland, a surviving spouse receives in one-fourth and the usufruct for life in three-fourths of her husband's estate if he, as here, leaves no descendants but does leave legal heirs designated as “the group of his parents.” A usufruct is comparable to the life estate of the common .

To effect the distribution of the assets of the estate of decedent's husband in accordance with the laws of Descent and Distribution of Switzerland, one-fourth of the shares of stock were distributed to the decedent outright. The remaining three-fourths of the shares were placed in trust by the decedent and the remaindermen acting together. The trust indenture provided that the net trust income was to be distributed to the decedent during her lifetime. After her death, the trust assets were to be divided into two equal shares. One such share was to be distributed to the mother of the decedent's husband. The other share was to be distributed to the sister of the decedent's husband.

The value of the subject to a decedent's life estate is includible under Code §2036 only where the decedent, in legal effect, made a transfer of the property and retained the life estate. Here, although the decedent was one of the settlors of the trust, she was never entitled to more than a usufruct for life in the trust property. Thus, she did not have a sufficient interest in the trust property to make a transfer thereof within the meaning of Code §2036. Accordingly, the ruling held that no part of the value of the assets of the trust involved was includible as a part of the decedent's (wife's) estate for Federal estate tax purposes. HUNDREDS of additional charts at www.andrewmitchel.com