PLR 200003023: Surviving spouse's proposed disclaimers qualify if timely delivered

Plain-English summary

A surviving spouse proposed to disclaim powers over a trust and portions of jointly held Treasury and bank accounts attributable to the deceased spouse. The IRS treated the spouse's powers to withdraw, appoint, amend, or revoke as a separate trust interest that could be disclaimed. It also concluded that the proposed disclaimers of the deceased spouse's share of the Treasury accounts and related deposits into joint bank accounts would qualify under § 2518. Each conclusion depended on a written disclaimer being delivered within nine months of the decedent's death. The ruling relied on representations that the spouses contributed equally to the accounts and that the surviving spouse had not received distributions from the deceased spouse's share.

Ruling snapshot

• Question: Would the proposed disclaimers of trust powers and specified joint account interests qualify under § 2518?
• Outcome: Approved, assuming written disclaimers were delivered within nine months of death.
• Key authorities: IRC §§ 2046 and 2518; Treas. Reg. §§ 25.2518-2 and 25.2518-3.

Full text (IRS public release)

Internal Revenue Service                 Department of the Treasury

Index Number:   2518.00-00               Washington, DC 20224



Number: 200003023                        Person to Contact:
Release Date: 1/21/2000
                                         Telephone Number:

                                         Refer Reply To:
                                         CC:DOM:P&SI:4/PLR 111357-99
                                         Date:
                                                 October 22, 1999



Re:

Legend
Decedent                   =
                               E.I.N.:
Spouse                     =
Child A                    =
Date 1                     =
Date 2                     =
Trust                      =

X                          =
Y                          =
Z                          =
State X                    =
Applicable State Law       =

Dear            :

     This is in response to your letter dated October 21, 1999,
and prior correspondence, in which you requested several ruling
concerning the application of § 2518 of the Internal Revenue Code
to proposed disclaimers.

     Decedent, a resident of State X, died on Date 1, survived by
Spouse. Under the terms of Decedent’s will, executed on Date 2,
Decedent’s residuary estate passed to a revocable trust (Trust)
also created on Date 2. Decedent and Spouse were co-settlors of
the Trust.

     Under Article III of the Trust, during the life of the
settlors, the trustee is to pay to the settlors all the trust
income in convenient installments in accordance with any written
or oral instructions that settlors may furnish regarding the
frequency or method of payments. Also, during the life of the
settlors, the trustee shall pay to them or for their benefit any
part or parts or all of the principal of the trust estate and any
accumulated income in accordance with the terms of any written or

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oral instruction that settlors may furnish to the trustee (only
if either settlor is not a trustee) regarding the method or
amount of such payments. In the event either settlor is not a
trustee, oral instructions are to be confirmed by the trustee in
writing sent to the settlors. At any time during the life of
settlors that they fail to furnish trustee with current written
or oral instructions concerning payments of net income or
principal to or for their benefit, then the trustee has
discretion to pay trust income and principal, as the trustee
determines to be necessary or advisable to provide for settlors’
health, support, and maintenance.
     Article V provides that either of the settlors may act on
behalf of this trust, either jointly or severally.
     Article XIII.A provides that the settlors reserve the power
to withdraw property from the trust in any amount and at any time
upon giving reasonable notice in writing to the trustee.

     During the lifetime of the settlors, the trust may be
revoked by the settlors "jointly", or by their personal
representatives, or by the survivor of them. Upon the death of
the survivor of Decedent and Spouse, the trust is to terminate
and the property distributed outright to the Decedent and
Spouse’s three children. If a child dies before termination and
is survived by issue, the issue of the deceased child will
receive the share of the deceased child, per stirpes. Decedent
and Spouse were initial co-trustees of Trust.

     Prior to the death of Decedent, Child A succeeded Spouse as
co-trustee of the Trust. After the death of Decedent, Child A
became the sole trustee. Since the death of Decedent, Child A
has also handled the personal affairs of Spouse.

     On the date of Decedent’s death, the Trust held one asset,
an investment account with a brokerage firm valued at X dollars.
It is represented that Decedent and Spouse contributed equally to
this account.

     Decedent and Spouse also owned jointly two Treasury Direct
Accounts holding a variety of U.S. Treasury Bills valued at Y
dollars. These accounts were held in the form "[Decedent] or
[Spouse]". In addition, Decedent and Spouse owned jointly three
bank accounts (savings, checking, and money market) with a
combined value of Z dollars. It is represented that Decedent and
Spouse contributed equally to the Treasury Direct Accounts and
the three joint bank accounts.

     Prior to the Decedent’s death, the earnings from the
investment account and Treasury Direct Accounts were

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automatically deposited into either the savings account or the
money market account. For a short period after Decedent’s death,
these automatic deposits continued. Additionally, other deposits
(pension, Social Security, and proceeds from the sale of three
securities held in the investment account) were made to the three
bank accounts. Child A, used some of the funds in the three
accounts to pay certain expenses of the Spouse and Decedent’s
estate. It is represented that the amount withdrawn from the
three accounts after Decedent’s death was Z dollars (the amount
held in these accounts at the date of the Decedent’s death).
Thus, an amount equal to funds automatically deposited into the
accounts from the Treasury Direct Accounts and investment account
after Decedent’s death, or any of the funds deposited into the
three bank accounts after Decedent’s death, was retained in the
accounts.
     Subsequent to Decedent’s death, the Trust investment account
and the Treasury Direct Accounts have been divided into equal
accounts and the automatic deposits into the three bank accounts
have been canceled. Furthermore, no distributions have been made
from the share attributable to Decedent’s one-half interest in
the Trust investment account or one-half interest in the Treasury
Direct Accounts. Distributions have been made from the accounts
funded with Spouse’s one-half share.

     Spouse proposes to disclaim within 9 months of Decedent’s
death one-half of the Treasury Direct Accounts and one-half of
the funds in the bank accounts attributable to Decedent’s one-
half interest in the Treasury Direct Accounts and Trust
investment account (plus any income earned in the bank accounts
attributable to this property). Spouse will also disclaim her
powers to withdraw or appoint Trust assets and her power to amend
or revoke the Trust as to the Decedent’s one-half interest in the
Trust investment account, and any other property passing to the
Trust as a result of the above disclaimers. The trustee will
segregate the property subject to the disclaimer and administer
the property separately.

     Under Applicable State Law governing disclaimers, a person
to whom any property devolves by whatever means may disclaim such
property. The property may be disclaimed regardless of whether
it passes under a testamentary instrument, by intestacy or under
a nontestamentary instrument or contract. A surviving joint
tenant may disclaim as a separate interest any property interest
passing to the surviving joint tenant by right of survivorship.
Also, under Applicable State Law, the disclaimant is treated as
predeceasing the decedent with respect to the disclaimed
property. Consequently, in the instant case, as a result of
Spouse’s disclaimers, the disclaimed interest in the Treasury
Direct Accounts and the bank accounts will pass through

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Decedent’s probate estate to Trust.


     You have requested the following rulings:

1. The Spouse’s proposed disclaimer of her powers to withdraw or
appoint trust assets and her power to amend or revoke the trust
as to the Decedent’s one-half interest in the investment account,
and any other property passing to the trust as a result of the
disclaimers (described below), will be a qualified disclaimer
under § 2518.
2. The Spouse’s proposed disclaimer of one-half of the Treasury
Direct Accounts and one-half of the funds deposited in the bank
accounts after Decedent’s death, attributable to Decedent’s one-
half interest in the Treasury Direct Accounts and Trust
investment account (plus any income earned in the bank accounts
attributable to this property) will be a qualified disclaimer
under § 2518.

     Section 2046 provides that disclaimers of interests passing
upon death are treated for federal estate tax purposes as
provided by § 2518. Section 2518 sets forth the requirements
that must be met for a disclaimer to be treated as qualified for
federal gift tax purposes.

     Section 2518(a) provides that if a person makes a qualified
disclaimer with respect to any interest in property, then for
purposes of the federal estate, gift and generation-skipping
transfer tax, such interest will be treated as if it had never
been transferred to the disclaimant. Section 2518(b) defines the
term "qualified disclaimer" to mean an irrevocable and
unqualified refusal by a person to accept an interest in property
but only if:

(1) such refusal is in writing;

(2) such writing is received by the transferor of the interest,
the transferor's legal representative, or the holder of the legal
title to the property to which the interest relates not later
than the date that is 9 months after the later of the date on
which the transfer creating the interest in such person is made,
or the day that the person attains age 21;

(3) such person has not accepted the interest or any of its
benefits; and

(4) as a result of such refusal, the interest passes without any
direction on the part of the person making the disclaimer and
passes either to the spouse of the decedent, or to a person other

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than the person making the disclaimer.

   Section 25.2518-1(b) of the Gift Tax Regulations provides, in
part, that if a person makes a qualified disclaimer, then for
purposes of the Federal estate, gift, and generation-skipping
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 transferror 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.

   Section 25.2518-2(d)(1) provides that a qualified disclaimer
cannot be made with respect to an interest in property if the
disclaimant has accepted the interest or any of the benefits,
expressly or impliedly, prior to making the disclaimer.
Acceptance is manifested by an affirmative act that 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 the property. However, merely taking
delivery of an interest or 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 the decedent.

   Section 25.2518-2(e)(1) provides that a disclaimer is not a
qualified disclaimer unless the disclaimed interest passes
without direction on the part of the disclaimant to a person
other than the disclaimant (except if the disclaimant is the
decedent’s surviving spouse). 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 is to be treated as directing the transfer of the
property interest. A disclaimer is not a qualified disclaimer if
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 the disclaimed
property passes to or for the benefit of the disclaimant as a
result of the disclaimer (except in the case of a disclaimer by
the surviving spouse).

   Section 25.2518-2(e)(2) provides that 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 § 25.2518-2(e) if the interest passes as a
result of the disclaimer without direction on the part of the

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surviving spouse either to the surviving spouse or to another
person.

     Section 25.2518-3(a)(1)(i) provides that if the requirements
of the 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.

     Section 25.2518-3(a)(1)(iii) provides that 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 any undivided portion of such property may be
disclaimed independently from any other interest separately
created by the transferor in the property if the requirements of
§ 2518(b) are met. 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.

     Section 25.2518-2(c)(4)(iii) provides that in the case of a
transfer to a joint bank, brokerage, or other investment account
(e.g. an account held at a mutual fund), if a transferor may
unilaterally regain the transferor’s own contributions to the
account without the consent of the other cotenant, such that the
transfer is not a completed gift under § 25.2511-1(h)(4), the
transfer creating the survivor’s interest in the decedent’s share
of the account occurs on the death of the deceased cotenant,
Accordingly, if a surviving joint tenant desires to make a
qualified disclaimer with respect to funds contributed by a
deceased cotenant, the disclaimer must be made within 9 months of
the cotenant’s death. The surviving joint tenant may not
disclaim any portion of the joint account attributable to
consideration furnished by the surviving joint tenant.
     In the instant case, with respect to the investment account
held in Trust, it is represented that Decedent and Spouse
contributed equally to the account. Under the terms of Trust,
Decedent retained the right to withdraw his one-half contribution
without having to account to Spouse for the withdrawal. Further,
as it pertains to Decedent’s one-half interest in the Trust,
Spouse’s power to withdraw or appoint trust assets and her power
to amend or revoke the Trust, effectively constitute a lifetime
power of appointment, that is treated as a separate interest in
the Trust in accordance with § 25.2518-3(a)(1)(iii).
Accordingly, we conclude that Spouse’s disclaimer of her powers
to withdraw or appoint Trust assets and to amend or revoke the

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Trust as to Decedent’s one-half interest in the Trust and the
assets passing to the Trust as a result of Spouse’s other
disclaimers (described below), will constitute a qualified
disclaimer, if the proposed disclaimer is in writing and
delivered within 9 months of the Decedent’s date of death.

     With respect to the Treasury Direct Accounts, we note that
the accounts were titled in the form Decedent "or" Spouse and
under applicable Treasury Regulations, Decedent could
unilaterally withdraw his contributions to the accounts. See
31 C.F.R. § 357.21(b)(2)(ii). Further, in view of the
disclaimers with respect to Spouse’s powers in Trust, noted
above, Spouse will not retain any power to direct the disposition
of the disclaimed property. Accordingly, we conclude that
Spouse’s disclaimer of one-half of the Treasury Direct Accounts,
will constitute a qualified disclaimer under § 2518 assuming the
disclaimer is in writing and delivered within 9 months of
Decedent’s death as required under § 2518(b). Similarly, we
conclude that the Spouse’s disclaimer of the deposits made to the
three joint accounts after Decedent’s death attributable to
Decedent’s share of the Treasury Direct Accounts and Trust
investment account will constitute a qualified disclaimer under
§ 2518 assuming the disclaimer is in writing and delivered within
9 months of Decedent’s death as required under § 2518(b).

   This ruling is directed only to the taxpayer who requested it.
Section 6110(k)(3) provides that it may not be used or cited as
precedent.

   In accordance with the power of attorney on file with this
office, we are sending a copy of this letter to the taxpayer.




                                   Sincerely,
                                   Assistant Chief Counsel
                                   (Passthroughs and Special
                                   Industries)



                                   By
                                   George L. Masnik
                                   Chief, Branch 4

Enclosure
  Copy for 6110 purposes