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T.D. 8095
Treasury Decisions
Copyright 2007 LexisNexis Group, All Rights Reserved
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 20, 25, and 602
51 FR 28365
Estate and Gift Taxes; Qualified Disclaimers of Property
T.D. 8095
DATE: August 7, 1986
ACTION: Final regulations.
SUMMARY: This document contains final regulations relating to the disclaimer of property
transferred by gift or inheritance. Changes to the applicable law were made by the Tax
Reform Act of 1976, the Revenue Act of 1978 and the Act of October 4, 1966. These
regulations provide necessary guidance to the public for compliance with the law and affect
those persons who disclaim an interest in property.
DATES: The regulations are effective for taxable transfers made after December 31, 1976.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:William A. Jackson of the Legislation and Regulations
Division, Office of the Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue
NW., Washington, DC 20224 (Attention: CC:LR:T: 202-566-4336, not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
On July 22, 1980, the Federal Register published proposed amendments to the Estate and
Gift Tax Regulations (26 CFR Parts 20 and 25) under sections 2041, 2045, 2055, 2056, 2511,
2514 and 2518 of the Internal Revenue Code of 1954 (Code) (45 FR 48922). The
amendments were proposed to conform the regulations to section 2009(b) of the Tax Reform
Act of 1976 (90 Stat. 1893), which added section 2518 to the Code; section 702(m) of the
Revenue Act of 1978 ( 92 Stat. 2935), which allowed a surviving spouse to receive an
interest in property as a result of a qualified disclaimer by the spouse; and the Act of October
4, 1966 ( 80 Stat. 872), which allowed an interest disclaimed by a person other than the
surviving spouse to be treated as passing from the decedent to the surviving spouse where
the spouse receives the interest as a result of the disclaimer. A public hearing was held on
November 18, 1980. After consideration of all comments regarding the proposed
amendments, those amendments are adopted as revised by this Treasury decision.
Summary of Revisions
Effective Dates
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Sections 20.2041-3(d)(6)(i) and 25.2518-1(a) have been revised to clarify that section 2518
applies to all interests in property if the interest in the property was created by a taxable
transfer made after December 31, 1976. Thus, section 2518 applies to a revocable trust
created prior to December 31, 1976 if it becomes irrevocable after that date. The 9-month
period in such a case would be measured from the date on which the transfer creating the
interest became irrevocable.
Effect of a Qualified Disclaimer
One commentator suggested that § 25.2518-1(b) be amended to clarify that a beneficiary of
a generation-skipping trust who makes a qualified disclaimer is treated as never having been
a beneficiary. No revision was made in paragraph (b) of § 25.2518-1 because that paragraph
already states that the disclaimed interest is treated as if it had never been transferred to the
disclaimant and that the interest is treated as passing directly to the person entitled to
receive the property as a result of the disclaimer.
The same commentator also suggested that § 25.2056(d)-1(a) be amended to specify the
effect of a nonqualified disclaimer by a surviving spouse. No change has been made under §
25.2056(d)-1(a) because § 25.2511-1(c)(1) already specifically states that any disposition
which is not a qualified disclaimer constitutes the making of a gift.
Effect of Local Law
Several commentators believed that the proposed regulation under paragraph (c)(1) of §
25.2518-1, relating to the effect of local law, is wrong because of the requirement that the
disclaimer be effective under local law. In response to these comments, paragraph (c)(1) has
been revised to clarify that even if the requirements of local law are not met, one can
nevertheless make a qualified disclaimer under section 2518 if, under applicable local law,
the interest is transferred, as a result of attempting the disclaimer, to another person without
any direction on the part of the disclaimant. Mandatory actions by the disclaimant which are
required under local law merely to divest ownership of the property in the disclaimant and
vest it in another person will not disqualify the disclaimer for purposes of section 2518.
Further, the rule under paragraph (c)(2) of § 25.2518-1 has been changed to make it clear
that whether a transfer is voidable has no effect on the determination of whether a disclaimer
constitutes a qualified disclaimer. This Treasury decision does not contain regulations relating
to the changes made to the law by the Economic Recovery Tax Act of 1981 which allows
certain transfers to be treated as qualified disclaimers even if no effective disclaimer has
been made under local law. Proposed regulations relating to this change will be published
shortly in another project (LR-212-81).
Beneficiary Under Twenty-one Years of Age
In order to make a qualified disclaimer under section 2518, a disclaimer must be made no
later than 9 months after the transfer creating the interest in the person disclaiming, or, if
later, 9 months after the day the disclaimant attains age 21. The proposed regulations have
been revised to clarify in paragraph (d)(3) of § 25.2518-2 that in the case of a beneficiary of
an interest in property who is under 21 years of age, any actions taken with regard to the
interest by the beneficiary or a custodian prior to the beneficiary's twenty-first birthday will
not be considered to be an acceptance of the interest by the beneficiary.
Joint Ownership
Several commentators believed the regulations should be revised to allow a qualified
disclaimer to be made with respect to jointly owned property within 9 months of the death of
the first joint tenant. Several other commentators believe that the regulations should allow at
least the accretive portion to be disclaimed. Other commentators suggested that examples
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be inserted into the final regulations that illustrate the effect of the joint ownership rules in
community property jurisdictions, the issue of acceptance, the effect of revocability, and the
effect of former section 2515, relating to the creation of a joint tenancy.
A minor revision has been made in the regulations regarding the ability of a surviving joint
tenant to disclaim the jointly held property. The general rule that a disclaimer of a joint
interest must be made within 9 months of the transfer creating the interest remains
unchanged because each joint tenant receives an interest in the entire property subject to
the tenancy, as well as the rights of survivorship, at the time of the transfer creating the
joint interest. See Pearl M. Kennedy v. Commissioner, Docket No. 33349-83, T.C. Memo,
1986-3, January 2, 1986. However, in the case of a joint tenancy between spouses or a
tenancy by the entirety in real property created after 1976 and before 1982 where no
election is made under section 2515, the surviving tenant can make a qualified disclaimer of
the entire jointly held property (except any portion attributable to consideration furnished by
the surviving tenant) within 9 months after the death of the first tenant to die if such tenant
dies before 1982. If such tenant dies in 1982 or thereafter, the surviving tenant may only
disclaim one-half of the jointly held property. In addition, a joint tenant cannot make a
qualified disclaimer of any portion of the joint interest attributable to consideration furnished
by that tenant. Examples have been added to the final regulations illustrating the other
issues raised by the commentator.
Surviving Spouse
Under the proposed regulations, a surviving spouse could not make a qualified disclaimer if
the spouse retained the power to direct the beneficial enjoyment of disclaimed property.
Several commentators believe that the Revenue Act of 1978 reversed this result. No change
has been made regarding the requirements that a surviving spouse must meet in order to
make a qualified disclaimer. The statute states that the interest must pass to a person
without any direction on the part of the person making the disclaimer. If the spouse retains
the power to direct beneficial enjoyment of the disclaimed property, the disclaimer would
violate this rule.
Disclaimer of Less Than an Entire Interest
Section 25.2518-3 has been revised in response to the many comments received. Under the
proposed regulations, all interests in income were treated as one separate interest and all
interests in corpus were treated as another separate interest. Under the final regulations,
each interest or power with respect to property that is separately created by the transferor is
generally treated as a separate interest. Thus, a person could make a qualified disclaimer of
one interest in corpus while retaining another interest in corpus, assuming that all other
requirements of section 2518(b) have been met. However, if local law merges separately
created interests, a qualified disclaimer will be allowed only if there is a disclaimer of the
entire merged interest or an undivided portion of such merged interest. In addition, the final
regulations provide that where a merger of separate interests would occur but for the
creation by the transferor of a nominal interest, a qualified disclaimer will be allowed only if
there is a disclaimer of all of the separate interests, or an undivided portion of all such
interests, which would have merged but for the nominal interest.
Disclaimer of a Pecuniary Amount
Section 25.2518-3(c) of the proposed regulations has been revised to provide that a
disclaimer of a specific pecuniary amount out of a pecuniary or nonpecuniary bequest or gift
can be a qualified disclaimer provided that no income or other benefit of the disclaimed
amount inures to the benefit of the disclaimant either prior to or subsequent to the
disclaimer. Thus, following a disclaimer of a specific pecuniary amount, the disclaimed
amount and any income attributable to such amount must be segregated from the portion of
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the gift or bequest that was not disclaimed. Further, the segregation of any assets making up
the disclaimed amount must be made on the basis of the fair market value of the assets on
the date of the disclaimer or on a basis fairly representative of the value changes that may
have occurred between the date of the transfer and the date of the disclaimer. The final
regulations also provide rules for making a disclaimer of a specific pecuniary amount after
the beneficiary has already received a distribution from the gift or bequest.
Life Insurance and Annuity Contracts
Two commentators questioned the necessity of singling out life insurance proceeds and
annuities because the same rules apply to such interests as apply to any other interest in
property. In response to this comment, § 25.2518-4 has been deleted from the final
regulations.
Regulatory Flexibility Act and Executive Order 12291
The Commissioner of Internal Revenue has determined that this final rule is not a major rule
as defined in Executive Order 12291 and that a Regulatory Impact Analysis is therefore not
required. The notice of proposed rulemaking relating to this final rule was published before
January 1, 1981. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility
Act is not required for this final rule.
Paperwork Reduction Act
The collection of information requirements contained in this regulation have been submitted
to the Office of Management and Budget (OMB) in accordance with the requirements of the
Paperwork Reduction Act of 1980. These requirements have been approved by OMB (control
number 1545-0959).
Drafting Information
The principal author of this regulation is William A. Jackson of the Legislation and Regulations
Division of the Office of Chief Counsel, Internal Revenue Service. However, personnel from
other offices of the Internal Revenue Service and Treasury Department participated in
developing the regulations, both on matters of substance and style.
List of Subjects
26 CFR Part 20
Estate taxes.
26 CFR Part 25
Gift taxes.
26 CFR Part 602
Paperwork Reduction Act.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR Parts 20, 25, and 602 are amended as follows:
PART 20 -- [AMENDED]
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Paragraph 1. The authority citation for Part 20 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 2. Section 20.2041-3(d)(6) is revised to read as follows:
§ 20.2041-3 Powers of appointment created after October 21, 1942.
*****
(c) Releases, lapses, and disclaimers of general powers of appointment. * * *
(6)(i) A disclaimer or renunciation of a general power of appointment created in a taxable
transfer after December 31, 1976, in the person disclaiming is not considered a release of
the power if the disclaimer or renunciation is a qualified disclaimer as described in section
2518 and the corresponding regulations. If the disclaimer or renunciation is not a qualified
disclaimer, it is considered a release of the power by the disclaimant.
(ii) The disclaimer or renunication of a general power of appointment created in a taxable
transfer before January 1, 1977, in the person disclaiming is not considered to be a release of
the power. The disclaimer or renunciation must be unequivocal and effective under local law.
A disclaimer is a complete and unqualified refusal to accept the rights to which one is
entitled. There can be no disclaimer or renunciation of a power after its acceptance. In the
absence of facts to the contrary, the failure to renounce or disclaim within a reasonable time
after learning of its existence will be presumed to constitute an acceptance of the power. In
any case where a power is purported to be disclaimed or renounced as to only a portion of
the property subject to the power, the determination as to whether or not there has been a
complete and unqualified refusal to accept the rights to which one is entitled will depend on
all the facts and circumstances of the particular case, taking into account the recognition and
effectiveness of such a disclaimer under local law. Such rights refer to the incidents of the
power and not to other interests of the decedent in the property. If effective under local law,
the power may be disclaimed or renounced without disclaiming or renouncing such other
interests.
*****
Par. 3. There is added immediately after § 20.2044-1, the following new § 20.2046-1:
§ 20.2046-1 Disclaimed property.
This section shall apply to the disclaimer or renunciation of a taxable transfer creating an
interest in the person disclaiming made after December 31, 1976. If a qualified disclaimer is
made with respect to such a transfer, the Federal estate tax provisions are to apply with
respect to the property interest disclaimed as if the interest had never been transferred to
the person making the disclaimer. See section 2518 and the corresponding regulations for
rules relating to a qualified disclaimer.
Par. 4. Section 20.2055-2(c) is revised to read as follows:
§ 20.2055-2 Transfers not exclusively for charitable purposes.
*****
(c) Disclaimers -- (1) Decedents dying after December 31, 1976. In the case of a bequest,
devise, or transfer made by a decedent dying after December 31, 1976, the amount of a
bequest, devise or transfer for which a deduction is allowable under section 2055 includes an
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interest which falls into the bequest, devise or transfer as the result of either -(i) A qualified disclaimer (see section 2518 and the corresponding regulations for rules
relating to a qualified disclaimer), or
(ii) The complete termination of a power to consume, invade, or appropriate property for the
benefit of an individual by reason of the death of such individual or for any other reason, if
the termination occurs within the period of time (including extensions) for filing the
decedent's Federal estate tax return and before such power has been exercised.
(2) Decedents dying before January 1, 1977. In the case of a bequest, devise or transfer
made by a decedent dying before January 1, 1977, the amount of a bequest, devise or
transfer, for which a deduction is allowable under section 2055 includes an interest which
falls into the bequest, devise or transfer as a result of either -(i) A disclaimer of a bequest, devise, transfer, or power, if the disclaimer is made within 9
months (15 months if the decedent died on or before December 31, 1970) after the
decedent's death (the period of time within which the estate tax return must be filed under
section 6075) or within any extension of time for filing the, return granted pursuant to
section 6081, and the disclaimer is irrevocable at the time the deduction is allowed, or
(ii) The complete termination of a power to consume, invade, or appropriate property for the
benefit of an individual (whether the termination occurs by reason of the death of the
individual, or otherwise) if the termination occurs within the period described in paragraph
(c)(2)(i) of this section and before the power has been exercised. Ordinarily, a disclaimer
made by a person not under any legal disability will be considered irrevocable when filed with
the probate court. A disclaimer is a complete and unqualified refusal to accept the right to
which one is entitled. Thus, if a beneficiary uses these rights for his own purposes, as by
receiving a consideration for his formal disclaimer, he has not refused the rights to which he
was entitled. There can be no disclaimer after an acceptance of these rights, expressly or
impliedly. The disclaimer of a power is to be distinguished from the release or exercise of a
power. The release or exercise of a power by the donee of the power in favor of a person or
object described in paragraph (a) of § 20.2055-1 does not result in any deduction under
section 2055 in the estate of the donor of a power (but see paragraph (b)(1) of § 20.2055-1
with respect to the donee's estate).
*****
Par. 5. Section 20.2056(a)-1(a) is amended by removing the phrase "§ 20.2056(f)-1 states
special rules concerning disclaimers of interests in property;" from the last sentence and
inserting in its place "§§ 20.2056(d)-1 and 20.2056(d)-2 state special rules concerning
disclaimers of interests in property;".
Par. 6. Section 20.2056(a)-1 (b)(2) is amended by adding "§ 20.2056(d)-(2)" to follow "§
20.2056(d)-1,".
Par 7. Section 20.2056(d)-1 is revised to read as set forth below, and a new § 20.2056(d)-2
is added to read as set forth below:
§ 20.2056(d)-1 Marital deduction; effect of disclaimers of post-December 31, 1976 transfers.
(a) Disclaimer by a surviving spouse. If a surviving spouse disclaims an interest in property
passing to such spouse from the decedent in a taxable transfer made after December 31,
1976, the efficacy of the disclaimer will be determined by section 2518 and the
corresponding regulations. If a qualified disclaimer is determined to have been made by the
surviving spouse, the property interest disclaimed is treated as if such interest had never
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been transferred to the surviving spouse.
(b) Disclaimer by a person other than a surviving spouse. If an interest in property passes to
one other than the surviving spouse from a decedent in a taxable transfer made after
December 31, 1976, and -(1) The person other than the surviving spouse makes a qualified disclaimer with respect to
such interest in property, and
(2) The surviving spouse is entitled to such interest in property as a result of such disclaimer,
the disclaimed interest is treated as passing directly from the decedent to the surviving
spouse. If the disclaimer is not a qualified disclaimer, the interest in property is considered as
passing from the decedent to the person who made the disclaimer as if the disclaimer had
not been made. See section 2518 and the corresponding regulations for rules relating to a
qualified disclaimer.
§ 20.2056(d)-2 Marital deduction; effect of disclaimers of pre-January 1, 1977 transfers.
(a) Disclaimer by a surviving spouse. If an interest in property passes to a decedent's
surviving spouse in a taxable transfer made by a decedent dying before January 1, 1977, and
the decedent's surviving spouse makes a disclaimer of this property interest the disclaimed
interest is considered as passing from the decedent to the person or persons entitled to
receive the interest as a result of the disclaimer. A disclaimer is a complete and unqualified
refusal to accept the rights to which one is entitled. It is, therefore, necessary to distinguish
between the surviving spouse's disclaimer of a property interest and such surviving spouse's
acceptance and subsequent disposal of a property interest. For example, if proceeds of
insurance are payable to the surviving spouse and the proceeds are refused so that they
consequently pass to an alternate beneficiary designated by the decedent, the proceeds are
considered as having passed from the decedent to the alternate beneficiary. On the other
hand, if the insurance company is directed by the surviving spouse to hold the proceeds at
interest during such spouse's life and, upon this spouse's death, to pay the principal sum to
another person designated by the surviving spouse, thus effecting a transfer of a remainder
interest, the proceeds are considered as having passed from the decedent to the surviving
spouse. See paragraph (c) of § 20.2056(e)-2 with respect to a spouse's exercise or failure to
exercise a right to take against a decedent's will.
(b) Disclaimer by a person other than a surviving spouse -- (1) Decedents dying after
October 3, 1966 and before January 1, 1977. This paragraph (b)(1) applies in the case of a
disclaimer of property passing to one other than the surviving spouse from a decedent dying
after October 3, 1966 and before January 1, 1977. If a surviving spouse is entitled to receive
property from the decedent as a result of the timely disclaimer made by the disclaimant, the
property received by the surviving spouse is to be treated as passing to the surviving spouse
from the decedent. Both a disclaimer of property passing by the laws of intestacy or
otherwise, as by insurance or by trust, and a disclaimer of bequests and devises under the
will of a decedent are to be fully effective for purposes of computing the marital deduction
under section 2056. A disclaimer is a complete and unqualified refusal to accept some or all
of the rights to which one is entitled. It must be a valid refusal under State law and must be
made without consideration. For example, a disclaimer for the benefit of a surviving spouse
who promises to give or bequeath property to a child of the person who disclaims is not a
disclaimer within the meaning of this paragraph (b)(1). The disclaimer must be made before
the person disclaiming accepts any property under the disclaimed interest. In the case of
property transferred by a decedent dying after December 31, 1970, and before January 1,
1977, the disclaimer must be made within 9 months after the decedent's death (or within any
extension of time for filing the estate tax return granted pursuant to section 6081). In the
case of property transferred by a decedent dying after October 3, 1966, and before January
1, 1971, the disclaimer must be made within 15 months after the decedent's death (or within
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any extension of time for filing the estate tax return granted pursuant to section 6081). If the
disclaimer does not satisfy the requirements of this paragraph (b)(1), for the purpose of the
marital deduction, the property is considered as passing from the decedent to the person
who made the disclaimer as if the disclaimer had not been made.
(2) Decedents dying after September 30, 1963 and before October 4, 1966. This paragraph
(b)(2) applies in the case of a disclaimer of property passing to one other than the surviving
spouse from a decedent dying after September 30, 1963 and before October 4, 1966. If, as a
result of the disclaimer by the disclaimant, the surviving spouse is entitled to receive the
disclaimed property interest, then such interest shall, for the purposes of this paragraph (b)
(2), be considered as passing from the decedent to the surviving spouse if the following
conditions are met. First, the interest disclaimed was bequeathed or devised to the
disclaimant. Second, the disclaimant disclaimed all bequests and devises under the will
before the date prescribed for the filing of the estate tax return. Third, the disclaimant did
not accept any property under the bequest or devise before making the disclaimer.
The interests passing by disclaimer to the surviving spouse under this paragraph (b)(2) are
to qualify for the marital deduction only to the extent that, when added to any other
allowable marital deduction without regard to this paragraph (b)(2), they do not exceed the
greater of the deductions which would be allowable for the marital deduction without regard
to the disclaimer if the surviving spouse exercised the election under State law to take
against the will, or an amount equal to one-third of the decedent's adjusted gross estate. If
the disclaimer does not satisfy the requirements of this paragraph (b)(2), the property is
treated as passing from the decedent to the person who made the disclaimer, in the same
manner as if the disclaimer had not been made.
(3) Decedents dying before October 4, 1966. Unless the rule of paragraph (b)(2) of this
section applies, this paragraph (b)(3) applies in the case of a disclaimer of property passing
to one other than the surviving spouse from a decedent dying before October 4, 1966. For
the purpose of these transfers, it is unnecessary to distinguish for the purpose of the marital
deduction between a disclaimer by a person other than the surviving spouse and a transfer
by such person. If the surviving spouse becomes entitled to receive an interest in property
from the decedent as a result of a disclaimer made by some other person, the interest is,
nevertheless, considered as having passed from the decedent, not to the surviving spouse,
but to the person who made the disclaimer, as though the disclaimer had not been made. If,
as a result of a disclaimer made by a person other than the surviving spouse, a property
interest passes to the surviving spouse under circumstances which meet the conditions set
forth in § 20.2056(b)-5 (relating to a life estate with a power of appointment), the rule
stated in the preceding sentence applies, not only with respect to the portion of the interest
which beneficially vests in the surviving spouse, but also with respect to the portion over
which such spouse acquires a power to appoint. The rule applies also in the case of proceeds
under a life insurance, endowment, or annuity contract which, as a result of a disclaimer
made by a person other than the surviving spouse, are held by the insurer subject to the
conditions set forth in § 20.2056(b)-6.
Gift Tax Regulations
PART 25 -- [AMENDED]
Par. 8. The authority citation for Part 25 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 9. Section 25.2511-1(c) is revised to read as follows:
§ 25.2511-1 Transfers in general.
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*****
(c) (1) The gift tax also applies to gifts indirectly made. Thus, any transaction in which an
interest in property is gratuitously passed or conferred upon another, regardless of the
means or device employed, constitutes a gift subject to tax. See further § 25.2512-8 relating
to transfers for insufficient consideration. However, in the case of a taxable transfer creating
an interest in the person disclaiming made after December 31, 1976, this paragraph (c)(1)
shall not apply to the donee if, as a result of a qualified disclaimer by the donee, the property
passes to a different donee. Nor shall it apply to a donor if, as a result of a qualified
disclaimer by the donee, a completed transfer of an interest in property is not effected. See
section 2518 and the corresponding regulations for rules relating to a qualified disclaimer.
(2) In the case of taxable transfers creating an interest in the person disclaiming made
before January 1, 1977, where the law governing the administration of the decedent's estate
gives a beneficiary, heir, or next-of-kin a right completely and unqualifiedly to refuse to
accept ownership of property transferred from a decedent (whether the transfer is effected
by the decedent's will or by the law of descent and distribution), a refusal to accept
ownership does not constitute the making of a gift if the refusal is made within a reasonable
time after knowledge of the existence of the transfer. The refusal must be unequivocal and
effective under the local law. There can be no refusal of ownership of property after its
acceptance. In the absence of the facts to the contrary, if a person fails to refuse to accept a
transfer to him of ownership of a decedent's property within a reasonable time after learning
of the existence of the transfer, he will be presumed to have accepted the property. Where
the local law does not permit such a refusal, any disposition by the beneficiary, heir, or nextof-kin whereby ownership is transferred gratuitously to another constitutes the making of a
gift by the beneficiary, heir, or next-of-kin. In any case where a refusal is purported to relate
to only a part of the property, the determination of whether or not there has been a complete
and unqualified refusal to accept ownership will depend on all of the facts and circumstances
in each particular case, taking into account the recognition and effectiveness of such a
purported refusal under the local law. In illustration, if Blackacre was devised to A under the
decedent's will (which also provided that all lapsed legacies and devises shall go to B, the
residuary beneficiary), and under the local law A could refuse to accept ownership in which
case title would be considered as never having passed to A, A's refusal to accept Blackacre
within a reasonable time of learning of the devise will not constitute the making of a gift by A
to B. However, if a decedent who owned Greenacre died intestate with C and D as his only
heirs, and under local law the heir of a decedent cannot, by refusal to accept, prevent himself
from becoming an owner of intestate property, any gratuitous disposition by C (by whatever
term it is known) whereby he gives up his ownership of a portion of Greenacre and D
acquires the whole thereof constitutes the making of a gift by C to D.
*****
Par. 10. Section 25.2514-3 is amended by revising the heading to paragraph (c), by adding
headings to paragraphs (c)(1) through (c)(4), by revising paragraph (c)(5), and by adding a
new paragraph (c)(6). The added and revised provisions of § 25.2514-3(c) read as follows:
§ 25.2514-3 Powers of appointment created after October 21, 1942.
*****
(c) Partial releases, lapses, and disclaimers of general powers of appointment created after
October 21, 1942 -- (1) Partial release of power. * * *
(2) Power partially released before June 1, 1951. * * *
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(3) Power partially released after May 31, 1951. * * *
(4) Release or lapse of power. * * *
(5) Disclaimer of power created after December 31, 1976. A disclaimer or renunciation of a
general power of appointment created in a taxable transfer after December 31, 1976, in the
person disclaiming is not considered a release of the power for gift tax purposes if the
disclaimer or renunciation is a qualified disclaimer as described in section 2518 and the
corresponding regulations. If the disclaimer or renunciation is not a qualified disclaimer, it is
considered a release of the power.
(6) Disclaimer of power created before January 1, 1977. A disclaimer or renunciation of a
general power of appointment created in a taxable transfer before January 1, 1977, in the
person disclaiming is not considered a release of the power. The disclaimer or renunciation
must be unequivocal and effective under local law. A disclaimer is a complete and unqualified
refusal to accept the rights to which one is entitled. There can be no disclaimer or
renunciation of a power after its acceptance. In the absence of facts to the contrary, the
failure to renounce or disclaim within a reasonable time after learning of the existence of a
power shall be presumed to constitute an acceptance of the power. In any case where a
power is purported to be disclaimed or renounced as to only a portion of the property subject
to the power, the determination as to whether there has been a complete and unqualified
refusal to accept the rights to which one is entitled will depend on all the facts and
circumstances of the particular case, taking into account the recognition and effectiveness of
such a disclaimer under local law. Such rights refer to the incidents of the power and not to
other interests of the possessor of the power in the property. If effective under local law, the
power may be disclaimed or renounced without disclaiming or renouncing such other
interests.
*****
Par. 11. New §§ 25.2518-1, 25.2518-2, and 25.2518-3 are added immediately after §
25.2517-1 to read as follows:
§ 25.2518-1 Qualified disclaimers of property; In general.
(a) Applicability -- (1) In general. The rules described in §§ 25.2518-1 through 25.2518-3
apply to the qualified disclaimer of an interest in property which is created in the person
disclaiming by a taxable transfer made after December 31, 1976. In general, a qualified
disclaimer is an irrevocable and unqualified refusal to accept the ownership of an interest in
property. For rules relating to the determination of when a transfer occurs, see § 25.2518-2
(c) (3) and (4).
(2) Example. The provisions of paragraph (a)(1) of this section may be illustrated by the
following example:
Example. W creates an irrevocable trust on December 10, 1968, and retains the right to
receive the income for life. Upon the death of W, which occurs after December 31, 1976, the
trust property is distributable to W's surviving issue, per stirpes. The creation of the
remainder interest in the trust was a taxable transfer. Therefore, section 2518 does not apply
to the disclaimer of the remainder interest because the taxable transfer was made prior to
January 1, 1977. If, however, W had also retained the power to designate the person or
persons to receive the trust principal at her death, and as a result no taxable gift was made
of the remainder interest at the time of the creation of the trust, section 2518 would apply to
any disclaimer made after W's death with respect to an interest in the trust property.
(b) Effect of a qualified disclaimer. If a person makes a qualified disclaimer as described in
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section 2518(b) and § 25.2518-2, for purposes of the Federal estate, gift, and generationskipping transfer tax provisions, the disclaimed interest in property is treated as if it had
never been transferred to the person making the qualified disclaimer. Instead, it is
considered as passing directly from the transferor of the property to the person entitled to
receive the property as a result of the disclaimer. Accordingly, a person making a qualified
disclaimer is not treated as making a gift. Similarly, the value of a decedent's gross estate for
purposes of the Federal estate tax does not include the value of property with respect to
which the decedent, or the decedent's executor or administrator on behalf of the decedent,
has made a qualified disclaimer. If the disclaimer is not a qualified disclaimer, for the
purposes of the Federal estate, gift, and generation-skipping transfer tax provisions, the
disclaimer is disregarded and the disclaimant is treated as having received the interest.
(c) Effect of local law -- (1) In general -- (i) Interests created before 1982. A disclaimer of an
interest created in a taxable transfer before 1982 which otherwise meets the requirements of
a qualified disclaimer under section 2518 and the corresponding regulations but which, by
itself, is not effective under applicable local law to divest ownership of the disclaimed
property from the disclaimant and vest it in another, is nevertheless treated as a qualified
disclaimer under section 2518 if, under applicable local law, the disclaimed interest in
property is transferred, as a result of attempting the disclaimer, to another person without
any direction on the part of the disclaimant. An interest in property will not be considered to
be transferred without any direction on the part of the disclaimant if, under applicable local
law, the disclaimant has any discretion (whether or not such discretion is exercised) to
determine who will receive such interest. Actions by the disclaimant which are required under
local law merely to divest owner-ship of the property from the disclaimant and vest
ownership in another person will not disqualify the disclaimer for purposes of section 2518
(a). See § 25.2518-2(d)(1) for rules relating to the immediate vesting of title in the
disclaimant.
(ii) Interests created after 1981. [Reserved].
(2) Creditor's claims. The fact that a disclaimer is voidable by the disclaimant's creditors has
no effect on the determination of whether such disclaimer constitutes a qualified disclaimer.
However, a disclaimer that is wholly void or that is voided by the disclaimant's creditors
cannot be a qualified disclaimer.
(3) Examples. The provisions of paragraphs (c) (1) and (2) of this section may be illustrated
by the following examples:
Example (1). F dies testate in State Y on June 17, 1978. G and H are beneficiaries under the
will. The will provides that any disclaimed property is to pass to the residuary estate. H has
no interest in the residuary estate. Under the applicable laws of State Y, a disclaimer must be
made within 6 months of the death of the testator. Seven months after F's death, H
disclaimed the real property H received under the will. The disclaimer statute of State Y has a
provision stating that an untimely disclaimer will be treated as an assignment of the interest
disclaimed to those persons who would have taken had the disclaimer been valid. Pursuant to
this provision, the disclaimed property became part of the residuary estate. Assuming the
remaining requirements of section 2518 are met, H has made a qualified disclaimer for
purposes of section 2518 (a).
Example (2). Assume the same facts as in example (1) except that the law of State Y does
not treat an ineffective disclaimer as a transfer to alternative takers. H assigns the disclaimed
interest by deed to those who would have taken had the disclaimer been valid. Under these
circumstances, H has not made a qualified disclaimer for purposes of section 2518 (a)
because the disclaimant directed who would receive the property.
Example (3). Assume the same facts as in example (1) except that the law of State Y
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requires H to pay a transfer tax in order to effectuate the transfer under the ineffective
disclaimer provision. H pays the transfer tax. H has make a qualified disclaimer for purposes
of section 2518 (a).
(d) Cross-reference. For rules relating to the effect of qualified disclaimers on the estate tax
charitable and marital deductions, see §§ 20.2055-2(c) and 20.2056(d)-1 respectively. For
rules relating to the effect of a qualified disclaimer of a general power of appointment, see §
20.2041-3(d).
§ 25.2518-2 Requirements for a qualified disclaimer.
(a) In general. For the purposes of section 2518(a), a disclaimer shall be a qualified
disclaimer only if it satisfies the requirements of this section. In general, to be a qualified
disclaimer -(1) The disclaimer must be irrevocable and unqualified:
(2) The disclaimer must be in writing;
(3) The writing must be delivered to the person specified in paragraph (b) (2) of this section
within the time limitations specified in paragraph (c)(1) of this section;
(4) The disclaimant must not have accepted the interest disclaimed or any of its benefits;
and
(5) The interest disclaimed must pass either to the spouse of the decedent or to a person
other than the disclaimant without any direction on the part of the person making the
disclaimer.
(b) Writing -- (1) Requirements. A disclaimer is a qualified disclaimer only if it is in writing.
The writing must identify the interest in property disclaimed and be signed either by the
disclaimant or by the disclaimant's legal representative.
(2) Delivery. The writing described in paragraph (b) (1) of this section must be delivered to
the transferor of the interest, the transferor's legal representative, the holder of the legal title
to the property to which the interest relates, or the person in possession of such property.
(c) Time limit -- (1) In general. A disclaimer is a qualified disclaimer only if the writing
described in paragraph (b) (1) of this section is delivered to the persons described in
paragraph (b) (2) of this section no later than the date which is 9 months after the later of -(i) The date on which the transfer creating the interest in the disclaimant is made, or
(ii) The day on which the disclaimant attains age 21.
(2) A timely mailing of a disclaimer treated as a timely delivery. Although section 7502 and
the regulations under that section apply only to documents to be filed with the Service, a
timely mailing of a disclaimer to the person described in paragraph (b) (2) of this section is
treated as a timely delivery if the mailing requirements under paragraphs (c) (1), (c) (2) and
(d) of § 301.7502-1 are met. Further, if the last day of the period specified in paragraph (c)
(1) of this section falls on Saturday, Sunday or a legal holiday (as defined in paragraph (b) of
§ 301.7503-1), then the delivery of the writing described in paragraph (b) (1) of this section
shall be considered timely if delivery is made on the first succeeding day which is not
Saturday, Sunday or a legal holiday. See paragraph (d) (3) of this section for rules applicable
to the exception for individuals under 21 years of age.
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(3) Transfer. For purposes of the time limitation described in paragraph (c) (1) (i) of this
section, the 9-month period for making a disclaimer generally is to be determined with
reference to the taxable transfer creating the interest in the disclaimant. With respect to inter
vivos transfers, a taxable transfer occurs when there is a completed gift for Federal gift tax
purposes regardless of whether a gift tax is imposed on the completed gift. Thus, gifts
qualifying for the gift tax annual exclusion under section 2503(b) are regarded as taxable
transfers for this purpose. With respect to transfers made by a decedent at death or transfers
which become irrevocable at death, a taxable transfer occurs upon the date of the decedent's
death. However, where there is a taxable transfer of an interest for Federal gift tax purposes
and such interest is later included in the transferor's gross estate for Federal estate tax
purposes, the 9-month period for making a qualified disclaimer is determined with reference
to the earlier taxable transfer. In the case of a general power of appointment, the holder of
the power has a 9-month period after the creation of the power in which to disclaim. A
person to whom any interest in property passes by reason of the exercise or lapse of a
general power may disclaim such interest within a 9-month period after the exercise or lapse.
In the case of a nongeneral power of appointment, the holder of the power, permissible
appointees, or takers in default of appointment must disclaim within a 9-month period after
the original taxable transfer that created or authorized the creation of the power. If the
transfer is for the life of an income beneficiary with succeeding interests to other persons,
both the life tenant and the other remaindermen, whether their interests are vested or
contingent, must disclaim no later than 9 months after the original taxable transfer. In the
case of a remainder interest in property which an executor elects to treat as qualified
terminable interest property under section 2056(b)(7), the remainderman must disclaim
within 9 months of the transfer creating the interest, rather than 9 months from the date
such interest is subject to tax under section 2044 or 2519. A person who receives an interest
in property as the result of a qualified disclaimer of the interest must disclaim the previously
disclaimed interest no later than 9 months after the date of the taxable transfer creating the
interest in the preceding disclaimant. Thus, if A were to make a qualified disclaimer of a
specific bequest and as a result of the qualified disclaimer the property passed as part of the
residue, the beneficiary of the residue could make a qualified disclaimer no later than 9
months after the date of the testator's death. See paragraph (d)(3) of this section for the
time limitation rule with reference to recipients who are under 21 years of age.
(4) Joint property -- (i) In general. Except as otherwise provided in paragraph (c)(4)(ii) of
this section, a qualified disclaimer under section 2518(a) of an interest or any portion of an
interest in a joint tenancy or a tenancy by the entirety must be made no later than 9 months
after the transfer creating the tenancy. Thus, a surviving joint tenant cannot disclaim any
part of the interest, including the survivorship interest, if more than 9 months have passed
since the transfer creating the joint tenancy. In addition, a joint tenant cannot make a
qualified disclaimer of any portion of the joint interest attributable to consideration furnished
by that tenant.
(ii) Tenancies in real property between spouses created before 1982. In the case of joint
tenancies between spouses or a tenancy by the entirety in real property created after 1976
and before 1982 where no election was made under section 2515, the surviving spouse must
make a qualified disclaimer no later than 9 months after the date of death of the first spouse
to die. Such a qualified disclaimer will be effective for -(A) The entire joint interest (except any portion attributable to consideration furnished by the
surviving spouse) if the date of death of the deceased spouse is before 1982; or
(B) One-half the value of the joint interest if the date of death of the deceased spouse is
after 1981.
50See examples (7) and (8) under paragraph (c)(5) of this section.
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(5) Examples. The provisions of paragraphs (c)(1) through (c)(4) of this section may be
illustrated by the following examples. For purposes of the following examples, assume that all
beneficiaries are over 21 years of age.
Example (1). On May 13, 1978, in a transfer which constitutes a completed gift for Federal
gift tax purposes, A creates a trust in which B is given a lifetime interest in the income from
the trust. B is also given a nongeneral testamentary power of appointment over the corpus of
the trust. The power of appointment may be exercised in favor of any of the issue of A and B.
If there are no surviving issue at B's death or if the power is not exercised, the corpus is to
pass to E. On May 13, 1978, A and B have two surviving children, C and D. If A, B, C or D
wishes to make a qualified disclaimer, the disclaimer must be made no later than 9 months
after May 13, 1978.
Example (2). Assume the same facts as in example (1) except that B is given a general
power of appointment over the corpus of the trust. B exercises the general power of
appointment in favor of C upon B's death on June 17, 1989. C may make a qualified
disclaimer no later than 9 months after June 17, 1989. If B had died without exercising the
general power of appointment, E could have made a qualified disclaimer no later than 9
months after June 17, 1989.
Example (3). F creates a trust on April 1, 1978, in which F's child G is to receive the income
from the trust for life. Upon G's death, the corpus of the trust is to pass to G's child H. If
either G or H wishes to make a qualified disclaimer, it must be made no later than 9 months
after April 1, 1978.
Example (4). A creates a trust on February 15, 1978, in which B is named the income
beneficiary for life. The trust further provides that upon B's death the proceeds of the trust
are to pass to C, if then living. If C predeceases D, the proceeds shall pass to D or D's estate.
To have timely disclaimers for purposes of section 2518, B, C, and D must disclaim their
respective interests no later than 9 months after February 15, 1978.
Example (5). A, a resident of State Q, dies on January 10, 1979, devising certain real
property to B. The disclaimer laws of State Q require that a disclaimer be made within a
reasonable time after a transfer. B disclaims the entire interest in real property on November
10, 1979. Although B's disclaimer may be effective under State Q law, it is not a qualified
disclaimer under section 2518 because the disclaimer was made later than 9 months after
the taxable transfer to B.
Example (6). A creates a revocable trust on June 1, 1980, in which B and C are given the
income interest for life. Upon the death of the last income beneficiary, the remainder interest
is to pass to D. The creation of the trust is not a completed gift for Federal gift tax purposes,
but each distribution of trust income to B and C is a completed gift at the date of distribution.
B and C disclaim each income distribution no later than 9 months after the date of the
particular distribution. In order to disclaim an income distribution in the form of a check, the
recipient must return the check to the trustee uncashed along with a written disclaimer. A
dies on September 1, 1982, causing the trust to become irrevocable, and the trust corpus is
includible in A's gross estate for Federal estate tax purposes under section 2038. If B or C
wishes to make a qualified disclaimer of his income interest, he must do so no later than 9
months after September 1, 1982. If D wishes to make a qualified disclaimer of his remainder
interest, he must do so no later than 9 months after September 1, 1982.
Example (7). On March 1, 1977, H and W purchase a tract of vacant land which is conveyed
to them as tenants by the entirety. The entire consideration is paid by H. H does not elect,
under section 2515, to have the transaction treated as a transfer for purposes of Chapter 12.
H dies on June 1, 1981. On October 1, 1981, W disclaims the property. Assuming the other
requirements of section 2518(b) are satisfied, W has made a qualified disclaimer because the
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transfer which created W's interest is treated as not occurring until H's death since no
election was made under section 2515. Had an election been made under section 2515, then
W's disclaimer of any of W's interest in the property would not be a qualified disclaimer.
Example (8). Assume the same facts as in example (7) except that H dies on September 3,
1984. W has until 9 months after September 3, 1984 to make a qualified disclaimer, but she
can only make a qualified disclaimer of one-half of the joint interest.
Example (9). On July 1, 1980, B transfers $10,000 to a bank account which is held jointly by
B and C. Assume the transfer is not a completed gift for Federal gift tax purposes. The funds
in the bank account may be withdrawn in full by either B or C at any time. C never receives
funds from the bank account. B dies on August 15, 1989, and C disclaims the amount in the
bank account on October 15, 1989. Assuming the remaining requirements of section 2518
(b) are satisfied, C made a qualified disclaimer under section 2518 (a) because it was made
no later than 9 months after the taxable transfer that created an interest in C.
Example (10). H and W reside in State X, a community property state. On April 1, 1978, H
and W purchase real property with community funds. The property is not held by H and W as
jointly owned property with rights of survivorship. H and W hold the property until January 3,
1985, when H dies. H devises his portion of the property to W. On March 15, 1985, W
disclaims the portion of the property devised to her by H. Assuming all the other
requirements of section 2518 (b) have been met, W has made a qualified disclaimer of the
interest devised to her by H. However, W could not disclaim the interest in the property that
she acquired on April 1, 1978.
(d) No acceptance of benefits -- (1) Acceptance. A qualified disclaimer cannot be made with
respect to an interest in property if the disclaimant has accepted the interest or any of its
benefits, expressly or impliedly, prior to making the disclaimer. Acceptance is manifested by
an affirmative act which is consistent with ownership of the interest in property. Acts
indicative of acceptance include using the property or the interest in property; accepting
dividends, interest, or rents from the property; and directing others to act with respect to the
property or interest in property. However, merely taking delivery of an instrument of title,
without more, does not constitute acceptance. Moreover, a disclaimant is not considered to
have accepted property merely because under applicable local law title to the property vests
immediately in the disclaimant upon the death of a decedent. The acceptance of one interest
in property will not, by itself, constitute an acceptance of any other separate interests
created by the transferor and held by the disclaimant in the same property. In the case of
residential property, held in joint tenancy by some or all of the residents, a joint tenant will
not be considered to have accepted the joint interest merely because the tenant resided on
the property prior to disclaiming his interest in the property. The exercise of a power of
appointment to any extent by the donee of the power is an acceptance of its benefits. In
addition, the acceptance of any consideration in return for making the disclaimer is an
acceptance of the benefits of the entire interest disclaimed.
(2) Fiduciaries. If a beneficiary who disclaims an interest in property is also a fiduciary,
actions taken by such person in the exercise of fiduciary powers to preserve or maintain the
disclaimed property shall not be treated as an acceptance of such property or any of its
benefits. Under this rule, for example, an executor who is also a beneficiary may direct the
harvesting of a crop or the general maintenance of a home. A fiduciary, however, cannot
retain a wholly discretionary power to direct the enjoyment of the disclaimed interest. For
example, a fiduciary's disclaimer of a beneficial interest does not meet the requirements of a
qualified disclaimer if the fiduciary exercised or retains a discretionary power to allocate
enjoyment of that interest among members of a designated class. See paragraph (e) of this
section for rules relating to the effect of directing the redistribution of disclaimed property.
(3) Under 21 years of age. A beneficiary who is under 21 years of age has until 9 months
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after his twenty-first birthday in which to make a qualified disclaimer of his interest in
property. Any actions taken with regard to an interest in property by a beneficiary or a
custodian prior to the beneficiary's twenty-first birthday will not be an acceptance by the
beneficiary of the interest.
(4) Examples. The provisions of paragraphs (d) (1), (2) and (3) of this section may be
illustrated by the following examples:
Example (1). On April 9, 1977, A established a trust for the benefit of B, then age 22. Under
the terms of the trust, the current income of the trust is to be paid quarterly to B.
Additionally, one half the principal is to be distributed to B when B attains the age of 30
years. The balance of the principal is to be distributed to B when B attains the age of 40
years. Pursuant to the terms of the trust, B received a distribution of income on June 30,
1977. On August 1, 1977, B disclaimed B's right to receive both the income from the trust
and the principal of the trust, B's disclaimer of the income interest is not a qualified
disclaimer for purposes of section 2518(a) because B accepted income prior to making the
disclaimer. B's disclaimer of the principal, however, does satisfy section 2518(b)(3). See also
§ 25.2518-3 for rules relating to the disclaimer of less than an entire interest in property.
Example (2). B is the recipient of certain property devised to B under the will of A. The will
stated that any disclaimed property was to pass to C. B and C entered into negotiations in
which it was declined that B would disclaim all enterest in the real property that was devised
to B. In exchange, C promised to let B live in the family home for life. B's disclaimer is not a
qualified disclaimer for purposes of section 2518(a) because B accepted consideration for
making the disclaimer.
Example (3). A received a gift of Blackacre on December 25, 1978. A never resided on
Blackacre but when property taxes on Blackacre became due on July 1, 1979, A paid them
out personal funds. On August 15, 1979, A disclaimed the gift of Blackacre. Assuming all the
requirements of section 2518 (b) have been met, A has made a qualified disclaimer of
Blackacre. Merely paying the property taxes does not constitute an acceptance of Blackacre
even though A's personal funds were used to pay the taxes.
Example (4). A died on February 15, 1978. Pursuant to A's will, B received a farm in State Z.
B requested the executor to sell the farm and to give the proceeds to B. The executor then
sold the farm pursuant to B's request. B then disclaimed $50,000 of the proceeds from the
sale of the farm. B's disclaimer is not a qualified disclaimer. By requesting the executor to
sell the farm B accepted the farm even though the executor may not have been legally
obligated to comply with B's request. See also § 25.2518-3 for rules relating to the disclaimer
of less than an entire interest in property.
Example (5). Assume the same facts as in example (4) except that instead of requesting the
executor to sell the farm, B pledged the farm as security for a short-term loan which was
paid off prior to distribution of the estate. B then disclaimed his interest in the farm. B's
disclaimer is not a qualified disclaimer. By pledging the farm as security for the loan, B
accepted the farm.
Example (6). A delivered 1,000 shares of stock in Corporation X to B as a gift on February 1,
1980. A had the shares registered in B's name on that date. On April 1, 1980, B disclaimed
the interest in the 1,000 shares. Prior to making the disclaimer, B did not pledge the shares,
accept any dividends or otherwise commit any acts indicative of acceptance. Assuming the
remaining requirements of section 2518 are satisfied, B's disclaimer is a qualified disclaimer.
Example (7). On January 1, 1980, A created an irrevocable trust in which B was given a
testamentary general power of appointment over the trust's corpus. B executed a will on
June 1, 1980, in which B provided for the exercise of the power of appointment. On
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September 1, 1980, B disclaimed the testamentary power of appointment. Assuming the
remaining requirements of section 2518 (b) are satisfied, B's disclaimer of the testamentary
power of appointment is a qualified disclaimer.
Example (8). H and W reside in X, a community property state. On January 1, 1981, H and W
purchase a residence with community funds. They continue to reside in the house until H dies
testate on February 1, 1990. Although H could devise his portion of the residence to any
person, H devised his portion of the residence to W. On September 1, 1990, W disclaims the
portion of the residence devised to her pursuant to H's will but continues to live in the
residence. Assuming the remaining requirements of section 2518(b) are satisfied, W's
disclaimer is a qualified disclaimer under section 2518 (a). W's continued occupancy of the
house prior to making the disclaimer will not by itself be treated as an acceptance of the
benefits of the portion of the residence devised to her by H.
Example (9). In 1979, D established a trust for the benefit of D's minor children E and F.
Under the terms of the trust, the trustee is given the power to make discretionary
distributions of current income and corpus to both children. The corpus of the trust is to be
distributed equally between E and F when E becomes 35 years of age. Prior to attaining the
age of 21 years on April 8, 1982, E receives several distributions of income from the trust. E
receives no distributions of income between April 8, 1982 and August 15, 1982, which is the
date on which E disclaims all interest in the income from the trust. As a result of the
disclaimer the income will be distributed to F. If the remaining requirements of section 2518
are met, E's disclaimer is a qualified disclaimer under section 2518(a). To have a qualified
disclaimer of the interest in corpus, E must disclaim the interest no later than 9 months after
April 8, 1982, E's 21st birthday.
Example (10). Assume the same facts as in example (9) except that E accepted a distribution
of income on May 13, 1982. E's disclaimer is not a qualified disclaimer under section 2518
because by accepting an income distribution after attaining the age of 21, E accepted
benefits from the income interest.
Example (11). F made a gift of 10 shares of stock to G as custodian for H under the State X
Uniform Gifts to Minors Act. At the time of the gift, H was 15 years old. At age 18, the local
age of majority, the 10 shares were delivered to and registered in the name of H. Between
the receipt of the shares and H's 21st birthday, H received dividends from the shares. Within
9 months of attaining age 21, H disclaimed the 10 shares. Assuming H did not accept any
dividends from the shares after attaining age 21, the disclaimer by H is a qualified disclaimer
under section 2518.
(e) Passage without direction by the disclaimant of beneficial enjoyment of disclaimed
interest -- (1) In general. A disclaimer is not a qualified disclaimer unless the disclaimed
interest passes without any direction on the part of the disclaimant to a person other than
the disclaimant (except as provided in paragraph (e)(2) of this section). If there is an
express or implied agreement that the disclaimed interest in property is to be given or
bequeathed to a person specified by the disclaimant, the disclaimant shall be treated as
directing the transfer of the property interest. The requirements of a qualified disclaimer
under section 2518 are not satisfied if -(i) The disclaimant, either alone or in conjunction with another, directs the redistribution or
transfer of the property or interest in property to another person (or has the power to direct
the redistribution or transfer of the property or interest in property to another person unless
such power is limited by an ascertainable standard); or
(ii) The disclaimed property or interest in property passes to or for the benefit of the
disclaimant as a result of the disclaimer (except as provided in paragraph (e)(2) of this
section).
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If a power of appointment is disclaimed, the requirements of this paragraph (e)(1)
are satisfied so long as there is no direction on the part of the disclaimant with
respect to the transfer of the interest subject to the power or with respect to the
transfer of the power to another person. A person may make a qualified disclaimer
of a beneficial interest in property even if after such disclaimer the disclaimant has
a fiduciary power to distribute to designated beneficiaries, but only if the power is
subject to an ascertainable standard. See examples (11) and (12) of paragraph (e)
(5) of this section.
(2) Disclaimer by surviving spouse. In the case of a disclaimer made by a decedent's
surviving spouse with respect to property transferred by the decedent, the disclaimer
satisfies the requirements of this paragraph (e) if the interest passes as a result of the
disclaimer without direction on the part of the surviving spouse either to the surviving spouse
or to another person. If the surviving spouse, however, retains the right to direct the
beneficial enjoyment of the disclaimed property in a transfer that is not subject to Federal
estate and gift tax (whether as trustee or otherwise), such spouse will be treated as directing
the beneficial enjoyment of the disclaimed property, unless such power is limited by an
ascertainable standard. See examples (4), (5), and (6) in paragraph (e)(5) of this section.
(3) Partial failure of disclaimer. If a disclaimer made by a person other than the surviving
spouse is not effective to pass completely an interest in property to a person other than the
disclaimant because -(i) The disclaimant also has a right to receive such property as an heir at law, residuary
beneficiary, or by any other means; and
(ii) The disclaimant does not effectively disclaim these rights, the disclaimer is not a qualified
disclaimer with respect to the portion of the disclaimed property which the disclaimant has a
right to receive. If the portion of the disclaimed interest in property which the disclaimant has
a right to receive is not severable property or an undivided portion of the property, then the
disclaimer is not a qualified disclaimer with respect to any portion of the property. Thus, for
example, if a disclaimant who is not a surviving spouse receives a specific bequest of a fee
simple interest in property and as a result of the disclaimer of the entire interest, the
property passes to a trust in which the disclaimant has a remainder interest, then the
disclaimer will not be a qualified disclaimer unless the remainder interest in the property is
also disclaimed. See § 25.2518-3 (a)(1)(ii) for the definition of severable property.
(4) Effect of precatory language. Precatory language in a disclaimer naming takers of
disclaimed property will not be considered as directing the redistribution or transfer of the
property or interest in property to such persons if the applicable State law gives the language
no legal effect.
(5) Examples. The provisions of this paragraph (e) may be illustrated by the following
examples:
Example (1). A, a resident of State X, died on July 30, 1978. Pursuant to A's will, B, A's son
and heir at law, received the family home. In addition, B and C each received 50 percent of
A's residuary estate. B disclaimed the home. A's will made no provision for the distribution of
property in the case of a beneficiary's disclaimer. Therefore, pursuant to the disclaimer laws
of State X, the disclaimed property became part of the residuary estate. Because B's 50
precent share of the residuary estate will be increased by 50 percent of the value of the
family home, the disclaimed property will not pass solely to another person. Consequently,
B's disclaimer of the family home is a qualified disclaimer only with respect to the 50 percent
portion that passes solely to C. Had B also disclaimed B's 50 percent interest in the residuary
estate, the disclaimer would have been a qualified disclaimer under section 2518 of the entire
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interest in the home (assuming the remaining requirements of a qualified disclaimer were
satisfied). Similarly, if under the laws of State X, the disclaimer has the effect of divesting B
of all interest in the home, both as devisee and as a beneficiary of the residuary estate,
including any property resulting from its sale, the disclaimer would be a qualified disclaimer
of B's entire interest in the home.
Example (2). D, a resident of State Y, died testate on June 30, 1978. E, an heir at law of D,
received specific bequests of certain severable personal property from D. E disclaimed the
property transferred by D under the will. The will made no provision for the distribution of
property in the case of a beneficiary's disclaimer. The disclaimer laws of State Y provide that
such property shall pass to the decedent's heirs at law in the same manner as if the
disclaiming beneficiary had died immediately before the testator's death. Because State Y's
law treats E as predeceasing D, the property disclaimed by E does not pass to E as an heir at
law or otherwise. Consequently, if the remaining requirements of section 2518(b) are
satisfied, E's disclaimer is a qualified disclaimer under section 2518(a).
Example (3). Assume the same facts as in example (2) except that State Y has no provision
treating the disclaimant as predeceasing the testator. E's disclaimer satisfies section 2518 (b)
(4) only to the extent that E does not have a right to receive the property as an heir at law.
Had E disclaimed both the share E received under D's will and E's intestate share, the
requirement of section 2518 (b)(4) would have been satisfied.
Example (4). B died testate on February 13, 1980. B's will established both a marital trust
and a nonmarital trust. The decedent's surviving spouse, A, is an income beneficiary of the
marital trust and has a testamentary general power of appointment over its assets. A is also
an income beneficiary of the nonmarital trust, but has no power to appoint or invade the
corpus. The provisions of the will specify that any portion of the marital trust disclaimed is to
be added to the nonmarital trust. A disclaimed 30 percent of the marital trust. (See §
25.2518-3 (b) for rules relating to the disclaimer of an undivided portion of an interest in
property.) Pursuant to the will, this portion of the marital trust property was transferred to
the nonmarital trust without any direction on the part of A. This disclaimer by A satisfies
section 2518 (b)(4).
Example (5). Assume the same facts as in example (4) except that A, the surviving spouse,
has both an income interest in the nonmarital trust and a testamentary nongeneral power to
appoint among designated beneficiaries. This power is not limited by an ascertainable
standard. The requirements of section 2518 (b)(4) are not satisfied unless A also disclaims
the nongeneral power to appoint the portion of the trust corpus that is attributable to the
property that passed to the nonmarital trust as a result of A's disclaimer. Assuming that the
fair market value of the disclaimed property on the date of the disclaimer is $250,000 and
that the fair market value of the nonmarital trust (including the disclaimed property)
immediately after the disclaimer is $750,000, A must disclaim the power to appoint one-third
of the nonmarital trust's corpus. The result is the same regardless of whether the nongeneral
power is testamentary or inter vivos.
Example (6). Assume the same facts as in example (4) except that A has both an income
interest in the nonmarital trust and a power to invade corpus if needed for A's health or
maintenance. In addition, an independent trustee has power to distribute to A any portion of
the corpus which the trustee determines to be desirable for A's happiness. Assuming the
other requirements of section 2518 are satisfied. A may make a qualified disclaimer of
interests in the marital trust without disclaiming any of A's interests in the nonmarital trust.
Example (7). B died testate on June 1, 1980. B's will created both a marital trust and a
nonmarital trust. The decedent's surviving spouse, C, is an income beneficiary of the marital
trust and has a testamentary general power of appointment over its assets. C is an income
beneficiary of the nonmarital trust, and additionally has the noncumulative right to withdraw
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yearly the greater of $5,000 or 5 percent of the aggregate value of the principal. The
provisions of the will specify that any portion of the marital trust disclaimed is to be added to
the nonmarital trust. C disclaims 50 percent of the marital trust corpus. Pursuant to the will,
this amount is transferred to the nonmarital trust. Assuming the remaining requirements of
section 2518(b) are satisfied, C's disclaimer is a qualified disclaimer.
Example (8). A, a resident of State X, died on July 19, 1979. A was survived by a spouse B,
and three children, C, D, and E. Pursuant to A's will, B received one-half of A's estate and the
children received equal shares of the remaining one-half of the estate. B disclaimed the
entire interest B had received. The will made no provisions for the distribution of property in
the case of a beneficiary's disclaimer. The disclaimer laws of State X provide that under these
circumstances disclaimed property passes to the decedent's heirs at law in the same manner
as if the disclaiming beneficiary had died immediately before the testator's death. As a result,
C, D, and E are A's only remaining heirs at law, and will divide the disclaimed property
equally among themselves. B's disclaimer includes language stating that "it is my intention
that C, D, and E will share equally in the division of this property as a result of my
disclaimer." State X considers these to be precatory words and gives them no legal effect. B's
disclaimer meets all other requirements imposed by State X on disclaimers, and is considered
an effective disclaimer under which the property will vest solely in C, D, and E in equal
shares without any further action required by B. Therefore, B is not treated as directing the
redistribution or transfer of the property. If the remaining requirements of secton 2518 are
met, B's disclaimer is a qualified disclaimer.
Example (9). C died testate on January 1, 1979. According to C's will, D was to receive 1/3 of
the residuary estate with any disclaimed property going to E. D was also to receive a second
1/3 of the residuary estate with any disclaimed property going to F. Finally, D was to receive
a final 1/3 of the residuary estate with any disclaimed property going to G. D specifically
states that he is disclaiming the interest in which the disclaimed property is designated to
pass to E. D has effectively directed that the disclaimed property will pass to E and therefore
D's disclaimer is not a qualified disclaimer under section 2518(a).
Example (10). Assume the same facts as in example (9) except that C's will also states that
D was to receive Blackacre and Whiteacre. C's will further provides that if D disclaimed
Blackacre then such property was to pass to E and that if D disclaimed Whiteacre then
Whiteacre was to pass to F. D specifically disclaims Blackacre with the intention that it pass
to E. Assuming the other requirements of section 2518 are met, D has made a qualified
disclaimer of Blackacre. Alternatively, D could disclaim an undivided portion of both Blackacre
and Whiteacre. Assuming the other requirements of section 2518 are met, this would also be
a qualified disclaimer.
Example (11) G creates an irrevocable trust on February 16, 1983, naming H, I and J as the
income beneficiaries for life and F as the remainderman. F is also named the trustee and as
trustee has the discretionary power to invade the corpus and make discretionary distributions
to H, I or J during their lives. F disclaims the remainder interest on August 8, 1983, but
retains his discretionary power to invade the corpus. F has not made a qualified disclaimer
because F retains the power to direct enjoyment of the corpus and the retained fiduciary
power is not limited by an ascertainable standard.
Example (12). Assume the same facts as in example (11) except that F may only invade the
corpus to make distributions for the health, maintenance or support of H, I or J during their
lives. If the other requirements of section 2518(b) are met, F has made a qualified disclaimer
of the remainder interest because the retained fiduciary power is limited by an ascertainable
standard.
§ 25.2518-3 Disclaimer of less than an entire interest.
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(a) Disclaimer of a partial interest -- (1) In general -- (i) Interest. If the requirements of this
section are met, the disclaimer of all or an undivided portion of any separate interest in
property may be a qualified disclaimer even if the disclaimant has another interest in the
same property. In general, each interest in property that is separately created by the
transferor is treated as a separate interest. For example, if an income interest in securities is
bequeathed to A for life, then to B for life, with the remainder interest in such securities
bequeathed to A's estate, and if the remaining requirements of section 2518(b) are met, A
could make a qualified disclaimer of either the income interest or the remainder, or an
undivided portion of either interest. A could not, however, make a qualified disclaimer of the
income interest for a certain number of years. Further, where local law merges interests
separately created by the transferor, a qualified disclaimer will be allowed only if there is a
disclaimer of the entire merged interest or an undivided portion of such merged interest. See
example (12) in paragraph (d) of this section. See § 25.2518-3(b) for rules relating to the
disclaimer of an undivided portion. Where the merger of separate interests would occur but
for the creation by the transferor of a nominal interest (as defined in paragraph (a)(1)(iv) of
this section), a qualified disclaimer will be allowed only if there is a disclaimer of all the
separate interests, or an undivided portion of all such interests, which would have merged
but for the nominal interest.
(ii) Severable property. A disclaimant shall be treated as making a qualified disclaimer of a
separate interest in property if the disclaimer relates to severable property and the
disclaimant makes a disclaimer which would be a qualified disclaimer if such property were
the only property in which the disclaimant had an interest. If applicable local law does not
recognize a purported disclaimer of severable property, the disclaimant must comply with the
requirements of paragraph (c)(1) of § 25.2518-1 in order to make a qualified disclaimer of
the severable property. Severable property is property which can be divided into separate
parts each of which, after severance, maintains a complete and independent existence. For
example, a legatee of shares of corporate stock may accept some shares of the stock and
make a qualified disclaimer of the remaining shares.
(iii) Powers of appointment. A power of appointment with respect to property is treated as a
separate interest in such property and such power of appointment with respect to all or an
undivided portion of such property may be disclaimed independently from any other interests
separately created by the transferor in the property if the requirements of section 2518(b)
are met. See example (21) of paragraph (d) of this section. Further, a disclaimer of a power
of appointment with respect to property is a qualified disclaimer only if any right to direct the
beneficial enjoyment of the property which is retained by the disclaimant is limited by an
ascertainable standard. See example (9) of paragraph (d) of this section.
(iv) Nominal interest. A nominal interest is an interest in property created by the transferor
that -(A) Has an actuarial value (as determined under § 20.2031-10) of less than 5 percent of the
total value of the property at the time of the taxable transfer creating the interest,
(B) Prevents the merger under local law or two or more other interests created by the
transferor, and
(C) Can be clearly shown from all the facts and circumstances to have been created primarily
for the purpose of preventing the merger of such other interests.
Factors to be considered in determining whether an interest is created primarily for
the purpose of preventing merger include (but are not limited to) the following: the
relationship between the transferor and the interest holder; the age difference
between the interest holder and the beneficiary whose interests would have
merged; the interest holder's state of health at the time of the taxable transfer;
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and, in the case of a contingent remainder, any other factors which indicate that
the possibility of the interest vesting as a fee simple is so remote as to be
negligible.
(2) In trust. A disclaimer is not a qualified disclaimer under section 2518 if the beneficiary
disclaims income derived from specific property transferred in trust while continuing to
accept income derived from the remaining properties in the same trust unless the disclaimer
results in such property being removed from the trust and passing, without any direction on
the part of the disclaimant, to persons other than the disclaimant or to the spouse of the
decedent. Moreover, a disclaimer of both an income interest and a remainder interest in
specific trust assets is not a qualified disclaimer if the beneficiary retains interests in other
trust property unless, as a result of the disclaimer, such assets are removed from the trust
and pass, without any direction on the part of the disclaimant, to persons other than the
disclaimant or to the spouse of the decedent. The disclaimer of an undivided portion of an
interest in a trust may be a qualified disclaimer. See also paragraph (b) of this section for
rules relating to the disclaimer of an undivided portion of an interest in property.
(b) Disclaimer of undivided portion. A disclaimer of an undivided portion of a separate
interest in property which meets the other requirements of a qualified disclaimer under
section 2518(b) and the corresponding regulations is a qualified disclaimer. An undivided
portion of a disclaimant's separate interest in property must consist of a fraction or
percentage of each and every substantial interest or right owned by the disclaimant in such
property and must extend over the entire term of the disclaimant's interest in such property
and in other property into which such property is converted. A disclaimer of some specific
rights while retaining other rights with respect to an interest in the property is not a qualified
disclaimer of an undivided portion of the disclaimant's interest in property. Thus, for
example, a disclaimer made by the devisee of a fee simple interest in Blackacre is not a
qualified disclaimer if the disclaimant disclaims a remainder interest in Blackacre but retains
a life estate.
(c) Disclaimer of a pecuniary amount. A disclaimer of a specific pecuniary amount out of a
pecuniary or nonpecuniary bequest or gift which statisfies the other requirements of a
qualified disclaimer under section 2518 (b) and the corresponding regulations is a qualified
disclaimer provided that no income or other benefit of the disclaimed amount inures to the
benefit of the disclaimant either prior to or subsequent to the disclaimer. Thus, following the
disclaimer of a specific pecuniary amount from a bequest or gift, the amount disclaimed and
any income attributable to such amount must be segregated from the portion of the gift or
bequest that was not disclaimed. Such a segregation of assets making up the disclaimer of a
pecuniary amount must be made on the basis of the fair market value of the assets on the
date of the disclaimer or on a basis that is fairly representative of value changes that may
have occurred between the date of transfer and the date of the disclaimer. A pecuniary
amount distributed to the disclaimant from the bequest or gift prior to the disclaimer shall be
treated as a distribution of corpus from the bequest or gift. However, the acceptance of a
distribution from the gift or bequest shall also be considered to be an acceptance of a
proportionate amount of income earned by the bequest or gift. The proportionate share of
income considered to be accepted by the disclaimant shall be determined at the time of the
disclaimer according to the following formula:
Total amount of distributions received by the disclaiment out of the gift or bequest / Total
value of the gift or bequest on the date of transfer X Total amount of incomeearned by the
gift or bequest between date of transfer and date of disclaimer
See examples (17), (18), and (19) in § 25.2518-3(d) for illustrations of the rules
set forth in this paragraph (c).
(d) Examples. The provisions of this section may be illustrated by the following examples:
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Example (1), A, a resident of State Q, died on August 1, 1978. A's will included specific
bequests of 100 shares of stock in X corporation; 200 shares of stock in Y corporation; 500
shares of stock in Z corporation; personal effects consisting of paintings, home furnishings,
jewelry, and silver, and a 500 acre farm consisting of a residence, various outbuildings, and
500 head of cattle. The laws of State Q provide that a disclaimed interest passes in the same
manner as if the disclaiming beneficiary had died immediately before the testator's death.
Pursuant to A's will, B was to receive both the personal effects and the farm. C was to
receive all the shares of stock in Corporation X and Y and D was to receive all the shares of
stock in Corporation Z. B disclaimed 2 of the paintings and all the jewelry, C disclaimed 50
shares of Y corporation stock, and D disclaimed 100 shares of Z corporation stock. If the
remaining requirements of section 2518(b) and the corresponding regulations are met, each
of these disclaimers is a qualified disclaimer for purposes of section 2518(a).
Example (2). Assume the same facts as in example (1) except that D disclaimed the income
interest in the shares of Z corporation stock while retaining the remainder interest in such
shares. D's disclaimer is not a qualified disclaimer.
Example (3). Assume the same facts as in example (1) except that B disclaimed 300
identified acres of the 500 acres. Assuming that B's disclaimer meets the remaining
requirements of section 2518(b), it is a qualified disclaimer.
Example (4). Assume the same facts as in example (1) except that A devised the income
from the farm to B for life and the remainder interest to C. B disclaimed 40 percent of the
income from the farm. Assuming that it meets the remaining requirements of section 2518
(b), B's disclaimer of an undivided portion of the income is a qualified disclaimer.
Example (5). E died on September 13, 1978. Under the provisions of E's will, E's shares of
stock in X, Y, and Z corporations were to be transferred to a trust. The trust provides that all
income is to be distributed currently to F and G in equal parts until F attains the age of 45
years. At that time the corpus of the trust is to be divided equally between F and G. F
disclaimed the income arising from the shares of X stock. G disclaimed 20 percent of G's
interest in the trust. F's disclaimer is not a qualified disclaimer because the X stock remains
in the trust. If the remaining requirements of section 2518(b) are met, G's disclaimer is a
qualified disclaimer.
Example (6). Assume the same facts as in example (5) except that F disclaimed both the
income interest and the remainder interest in the shares of X stock. F's disclaimer results in
the X stock being transferred out of the trust to G without any direction on F's part. F's
disclaimer is a qualified disclaimer under section 2518(b).
Example (7). Assume the same facts as in example (5) except that F is only an income
beneficiary of the trust. The X stock remains in the trust after F's disclaimer of the income
arising from the shares of X stock. F's disclaimer is not a qualified disclaimer under section
2518.
Example (8). Assume the same facts as in example (5) except that F disclaimed the entire
income interest in the trust while retaining the interest F has in corpus. Alternatively, assume
that G disclaimed G's entire corpus interest while retaining G's interest in the income from
the trust. If the remaining requirements of section 2518(b) are met, either disclaimer will be
a qualified disclaimer.
Example (9). G creates an irrevocable trust on May 13, 1980, with H, I, and J as the income
beneficiaries. In addition, H, who is the trustee, holds the power to invade corpus for H's
health, maintenance, support and happiness and a testamentary power of appointment over
the corpus. In the absence of the exercise of the power of appointment, the property passes
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to I and J in equal shares. H disclaimed the power to invade corpus for H's health,
maintenance, support and happiness. Because H retained the testamentary power to appoint
the property in the corpus, H's disclaimer is not a qualified disclaimer. If H also disclaimed
the testamentary power of appointment, H's disclaimer would have been a qualified
disclaimer.
Example (10). E creates an irrevocable trust on May 1, 1980, in which D is the income
beneficiary for life. Subject to the trustee's discretion, E's children, A, B, and C, have the
right to receive corpus during D's lifetime. The remainder passes to D if D survives A, B, C,
and all their issue. D also holds an inter vivos power to appoint the trust corpus to A, B, and
C. On September 1, 1980, D disclaimed the remainder interest. D's disclaimer is not a
qualified disclaimer because D retained the power to direct the use and enjoyment of corpus
during D's life.
Example (11). Under H's will, a trust is created from which W is to receive all of the income
for life. The trustee has the power to invade the trust corpus for the support or maintenance
of D during the life of W. The trust is to terminate at W's death, at which time the trust
property is to be distributed to D. D makes a timely disclaimer of the right to corpus during
W's lifetime, but does not disclaim the remainder interest. D's disclaimer is a qualified
disclaimer assuming the remaining requirements of section 2518 are met.
Example (12). Under the provisions of G's will A received a life estate in a farm, and was the
sole beneficiary of property in the residuary estate. The will also provided that the remainder
interest in the farm pass to the residuary estate. Under local law A's interests merged to give
A a fee simple in the farm. A made a timely disclaimer of the life estate. A's disclaimer of a
partial interest is not a qualified disclaimer under section 2518(a). If A makes a disclaimer of
the entire merged interest in the farm or an undivided portion of such merged interest then A
would be making a qualified disclaimer assuming all the other requirements of section 2518
(b) are met.
Example (13). A, a resident of State Z, dies on September 3, 1980. Under A's will, Blackacre
is devised to C for life, then to D for 1 month, remainder to C. Had A not created D's interest,
State Z law would have merged C's life estate and the remainder to C to create a fee simple
interest in C. Assume that the actuarial value of D's interest is less than 5 percent of the total
value of Blackacre on the date of A's death. Further assume that facts and circumstances
(particularly the duration of D's interest) clearly indicate that D's interest was created
primarily for the purpose of preventing the merger of C's two interests in Blackacre. D's
interest in Blackacre is a nominal interest and C's two interests will, for purposes of making a
qualified disclaimer, be considered to have merged. Thus, C cannot make a qualified
disclaimer of his remainder while retaining the life estate. C can, however, make a qualified
disclaimer of both of these interests entirely or an undivided portion of both.
Example (14). A, a resident of State X, dies on October 12, 1978. Under A's will, Blackacre
was devised to B for life, then to C for life if C survives B, remainder to B's estate. On the
date of A's death, B and C are both 8 year old grandchildren of A. In addition, C is in good
health. The actural value of C's interest is less than 5 percent of the total value of Blackacre
on the date of A's death. No facts are present which would indicate that the possibility of C's
contingent interest vesting is so remote as to be negligible. Had C's contingent life estate not
been created, B's life estate and remainder interests would have merged under local law to
give B a fee simple interest in Blackacre. Although C's interest prevents the merger of B's
two interests and has an actual value of less than 5 percent, C's interest is not a nominal
interest within the meaning of § 25.2518-3(a)(1)(iv) because the facts and circumstances do
not clearly indicate that the interest was created primarily for the purpose of preventing the
merger of other interests in the property. Assuming all the other requirements of section
2518(b) are met, B can make a qualified disclaimer of the remainder while retaining his life
estate.
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Example (15). In 1981, A transfers $60,000 to a trust created for the benefit of B who was
given the income interest for life and who also has a testamentary nongeneral power of
appointment over the corpus. A transfers an additional $25,000 to the trust on June 1, 1984.
At that time the trust corpus (exclusive of the $25,000 transfer) has a fair market value of
$75,000. On January 1, 1985, B disclaims the right to receive income attributable to 25
percent of the corpus
$25,000[1984 transfer] / $100,000[Fair market value of corpus immediately after the 1985
transfer] = 25%.
Assuming that no distributions were made to B attributable to the $25,00, B's disclaimer is a
qualified disclaimer for purposes of section 2518(a) if all the remaining requirements of
section 2518(b) are met.
Example (16). Under the provisions of B's will, A is left an outright cash legacy of $50,000
and has no other interest in B's estate. A timely disclaimer by A of any stated dollar amount
is a qualified disclaimer under section 2518(a).
Example (17). D bequeaths his brokerage account to E. The account consists of stocks and
bonds and a cash amount earning interest. The total value of the cash and assets in the
account on the date of D's death is $100,000. Four months after D's death, E makes a
withdrawal of cash from the account for personal use amounting to $40,000. Eight months
after D's death, E disclaims $60,000 of the account without specifying any particular assets
or cash. The cumulative fair market value of the stocks and bonds in the account on the date
of the disclaimer is equal to the value of such stocks and bonds on the date of D's death. The
income earned by the account between the date of D's death and the date of E's disclaimer
was $20,000. The amount of income earned by the account that E accepted by withdrawing
$40,000 from the account prior to the disclaimer is determined by applying the formula set
forth in § 25.2518-3(c) as follows:
$40,000 / $100,000 X $20,000 = $8,000
E is considered to have accepted $8,000 of the income earned by the account. If (i)
the $60,000 disclaimed by E and the $12,000 of income earned prior to the
disclaimer which is attributable to that amount are segregated from the $8,000 of
income E is considered to have accepted, (ii) E does not accept any benefits of the
$72,000 so segregated, and (iii) the other requirements of section 2518 (b) are
met, then E's disclaimer of $60,000 from the account is a qualified disclaimer.
Example (18). A bequeathed his residuary estate to B. The residuary estate had a value of $1
million on the date of A's death. Six months later, B disclaimed $200,000 out of this bequest.
B received distributions of all the income from the entire estate during the period of
administration. When the estate was distributed, B received the entire residuary estate
except for $200,000 in cash. B did not make a qualified disclaimer since he accepted the
benefits of the $200,000 during the period of estate administration.
Example (19). Assume the same facts as in example (18) except that no income was paid to
B and the value of the residuary estate on the date of the disclaimer (including interest
earned from date of death) was $1.5 million. In addition, as soon as B's disclaimer was
made, the executor of A's estate set aside assets worth $300,000
$200,000 / $1,000,000 X $1,500,000and the interest earned after the disclaimer on that
amount in a separate fund so that none of the income was paid to B. B's disclaimer is a
qualified disclaimer under section 2518(a).
Example (20). A bequeathed his residuary estate to B. B disclaims a fractional share of the
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residuary estate. Any disclaimed property will pass to A's surviving spouse, W. The
numerator of the fraction disclaimed is the smallest amount which will allow A's estate to
pass free of Federal estate tax and the denominator is the value of the residuary estate. B's
disclaimer is a qualified disclaimer.
Example (21). A created a trust on July 1, 1979. The trust provides that all current income is
to be distributed equally between B and C for the life of B. B also is given a testamentary
general power of appointment over the corpus. If the power is not exercised, the corpus
passes to C or C's heirs. B disclaimed the testamentary power to appoint an undivided onehalf of the trust corpus. Assuming the remaining requirements of section 2518(b) are
satisfied, B's disclaimer is a qualified disclaimer under section 2518(a).
PART 602 -- [AMENDED]
Par. 12. The authority citation for Part 602 continues to read as follows:
§ 602.101 [Amended]
11Par. 13. Section 602.101(c) is amended by inserting the following entry in the appropriate
place in the table:
"§ 25.2518-2(b)
1545-0959".
Roscoe L. Egger, Jr.,
Commissioner of Internal Revenue.
Approved: July 16, 1986.
J. Roger Mentz,
Assistant Secretary of the Treasury.
[FR Doc. 86-17606 Filed 8-6-86; 8:45 am]
BILLING CODE 4830-01-M
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