Inclusions in Gross Estate

A.      Properties owned by the decedent actually and physically present in his estate at the time of his death such as land, buildings, shares of stock, vehicles, bank deposit, etc.

B.      Decedent’s Interest – Refers to the extent of equity or ownership participation of the decedent on any property physically existing and present in the gross estate, whether or not in his possession, control or dominion.  It also refer to the value of ANY INTEREST IN PROPERTY OWNED OR POSSESSED by the decedent at the time of his death (interest having value or capable of being valued, transferred)

Example:

·         Dividends declared before his death but received after death.

·         Partnership profit which have accrued before his death

·         Usufructuary rights, etc.

C.       Properties NOT PHYSICALLY IN THE ESTATE (these have already been transferred during the lifetime of the decedent but are still subject to payment  of estate tax)

1.       Transfer in contemplation of death

-  It is the thought of death, as a controlling motive which induces the disposition of the property for the purpose of avoiding the tax.

-  Value of properties transferred by the decedent during his lifetime in anticipation of his death

a.        transfer of property in favor of another person, but the transfer was intended to take effect only upon the transferor’s death

b.       transfer by gift intended to take effect at death, or after death, or under which the donor reserved the income or the right to designate the persons who should enjoy the income

Ø  Exception:  there is no transfer in contemplation of death when the transfer of property is a bona fide sale for an adequate and full consideration in money or money’s worth.

-  Included within this concept is donation mortis causa – becomes effective upon the death of the donor

2.       Transfer with retention or reservation of certain rights

-  The decedent have transferred his property during his lifetime, but retained for himself beneficial enjoyment of the thing or the right to receive income from the same.

3.       Revocable Transfers

-  It is a transfer where the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent.

-  It is sufficient that the decedent had the power to revoked though he did not exercised the power.

4.       Transfers under a general power of appointment

Power of appointment

-  the right to designate the person or persons who will succeed to the property of the prior decedent.

General power of appointment

-  when it authorizes the donee to appoint any person he pleases.

-  The rule is the gross estate shall include any property passing or transferred under a general power of appointment exercised by the decedent

a)       By will

b)      By deed to take effect in possession or enjoyment at or after his death .

c)       By deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death.

d)      The possession or enjoyment of, or the  right to the income from the property.

e)       The right, either alone, or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom.

The donee of a general power of appointment holds the appointed property with all the attributes of ownership thus, the appointed property shall form part of the gross estate of the donee of the power upon his death. 

·         Transfers with Retention and Reservation of Certain Rights Over the Income or Enjoyment of the Property Transferred Transfers where the donor reserves the right to the income of the property until death;		These transfers do not actually convey full ownership over the property transferred hence the property still remains part of the gross estate of the transferor.
·         Transfers where the donor reserves the right to the possession or enjoyment of the property until death.

Special power of appointment

-  when the donee can appoint only from a restricted or designated class of persons other than himself

(NOTE:  Property transferred under a special power of appointment should be excluded from the gross estate.)

5.       Transfer for insufficient consideration

-  Property transferred by virtue of a bonafide sale for a price less than its fair market value at the time of sale.

-  The excess of the fair market value of the transferred property at the time of death over the value of the consideration received shall be included in the gross estate.

-  Two FMVs to be used:

a.        FMV of the property at the time of sale – to determine whether or not the consideration was full and adequate

b.       FMV of the property at the time of death -  to determine the amount to be included in the gross estate if the consideration received is less than full and adequate a compared to the FMV at the time of sale

6.       Proceeds of life insurance

-  Proceeds of life insurance taken out by the by the decedent on his own life shall be included in the gross estate if the following requisites are present:

1.                   it must be an insurance on the life of the decedent

2.                   the beneficiary must be either of the following:

a.                    his estate

b.                   his executor

c.                    his administrator and

d.                   any third person provided that the designation is not irrevocable

   NOTE:  When the problem is silent, the designation of beneficiary is revocable;  irrevocable designation of beneficiary is never presumed and for it to be valid, must be in writing.

-   Life insurance taken out not by the decedent himself is not part of the gross estate.