§ 2056.
(b)
Limitation in the case of life estate or other terminable interest
(1)
General rule
Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section with respect to such interest—
(A)
if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money’s worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and
(B)
if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse;
and no deduction shall be allowed with respect to such interest (even if such deduction is not disallowed under subparagraphs (A) and (B))—
(C)
if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.
For purposes of this paragraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.
(2)
Interest in unidentified assets
(3)
Interest of spouse conditional on survival for limited period
For purposes of this subsection, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if—
(A)
such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent’s death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event; and
(B)
such termination or failure does not in fact occur.
(4)
Valuation of interest passing to surviving spouse
In determining for purposes of subsection (a) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this section—
(A)
there shall be taken into account the effect which the tax imposed by section 2001, or any estate, succession, legacy, or inheritance tax, has on the net value to the surviving spouse of such interest; and
(B)
where such interest or property is encumbered in any manner, or where the surviving spouse incurs any obligation imposed by the decedent with respect to the passing of such interest, such encumbrance or obligation shall be taken into account in the same manner as if the amount of a gift to such spouse of such interest were being determined.
(5)
Life estate with power of appointment in surviving spouse
In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse—
(A)
the interest or such portion thereof so passing shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and
(B)
no part of the interest so passing shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse.
This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.
(6)
Life insurance or annuity payments with power of appointment in surviving spouse
In the case of an interest in property passing from the decedent consisting of proceeds under a life insurance, endowment, or annuity contract, if under the terms of the contract such proceeds are payable in installments or are held by the insurer subject to an agreement to pay interest thereon (whether the proceeds, on the termination of any interest payments, are payable in a lump sum or in annual or more frequent installments), and such installment or interest payments are payable annually or at more frequent intervals, commencing not later than 13 months after the decedent’s death, and all amounts, or a specific portion of all such amounts, payable during the life of the surviving spouse are payable only to such spouse, and such spouse has the power to appoint all amounts, or such specific portion, payable under such contract (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), with no power in any other person to appoint such amounts to any person other than the surviving spouse—
(A)
such amounts shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and
(B)
no part of such amounts shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse.
This paragraph shall apply only if, under the terms of the contract, such power in the surviving spouse to appoint such amounts, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.
(7)
Election with respect to life estate for surviving spouse
(A)
In general
In the case of qualified terminable interest property—
(i)
for purposes of subsection (a), such property shall be treated as passing to the surviving spouse, and
(ii)
for purposes of paragraph (1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse.
(B)
Qualified terminable interest property defined
For purposes of this paragraph—
(i)
In general
The term “qualified terminable interest property” means property—
(I)
which passes from the decedent,
(II)
in which the surviving spouse has a qualifying income interest for life, and
(III)
to which an election under this paragraph applies.
(ii)
Qualifying income interest for life
The surviving spouse has a qualifying income interest for life if—
(I)
the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and
(II)
no person has a power to appoint any part of the property to any person other than the surviving spouse.
Subclause (II) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).
(iii)
Property includes interest therein
(iv)
Specific portion treated as separate property
(C)
Treatment of survivor annuities
In the case of an annuity included in the gross estate of the decedent under section 2039 (or, in the case of an interest in an annuity arising under the community property laws of a State, included in the gross estate of the decedent under section 2033) where only the surviving spouse has the right to receive payments before the death of such surviving spouse—
(i)
the interest of such surviving spouse shall be treated as a qualifying income interest for life, and
(ii)
the executor shall be treated as having made an election under this subsection with respect to such annuity unless the executor otherwise elects on the return of tax imposed by section 2001.
An election under clause (ii), once made, shall be irrevocable.
(8)
Special rule for charitable remainder trusts
(B)
Definitions
For purposes of subparagraph (A)—
(i)
Charitable beneficiary
(iii)
Qualified charitable remainder trust
(9)
Denial of double deduction
(c)
Definition
For purposes of this section, an interest in property shall be considered as passing from the decedent to any person if and only if—
(1)
such interest is bequeathed or devised to such person by the decedent;
(2)
such interest is inherited by such person from the decedent;
(3)
such interest is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as surviving spouse of the decedent;
(4)
such interest has been transferred to such person by the decedent at any time;
(5)
such interest was, at the time of the decedent’s death, held by such person and the decedent (or by them and any other person) in joint ownership with right of survivorship;
(6)
the decedent had a power (either alone or in conjunction with any person) to appoint such interest and if he appoints or has appointed such interest to such person, or if such person takes such interest in default on the release or nonexercise of such power; or
(7)
such interest consists of proceeds of insurance on the life of the decedent receivable by such person.
([Aug. 16, 1954, ch. 736], [68A Stat. 392]; [Pub. L. 89–621, § 1(a)], Oct. 4, 1966, [80 Stat. 872]; [Pub. L. 94–455, title XIX, § 1902(a)(12)(A)], title XX, §§ 2002(a), 2009(b)(4)(D), (E), Oct. 4, 1976, [90 Stat. 1805], 1854, 1894; [Pub. L. 95–600, title VII, § 702(g)(1)], (2), Nov. 6, 1978, [92 Stat. 2930]; [Pub. L. 97–34, title IV, § 403(a)(1)], (d)(1), Aug. 13, 1981, [95 Stat. 301], 302; [Pub. L. 97–448, title I, § 104(a)(2)(A)], (8), Jan. 12, 1983, [96 Stat. 2380], 2381; [Pub. L. 98–369, div. A, title X, § 1027(a)], July 18, 1984, [98 Stat. 1031]; [Pub. L. 100–647, title V, § 5033(a)(1)], title VI, § 6152(a), Nov. 10, 1988, [102 Stat. 3670], 3725; [Pub. L. 101–239, title VII, § 7815(d)(4)(A)], (5), (6), (8), 7816(q), Dec. 19, 1989, [103 Stat. 2415], 2416, 2423; [Pub. L. 101–508, title XI], §§ 11701(l)(1), 11702(g)(5), Nov. 5, 1990, [104 Stat. 1388–513], 1388–516; [Pub. L. 102–486, title XIX, § 1941(a)], Oct. 24, 1992, [106 Stat. 3036]; [Pub. L. 105–34, title XIII, § 1311(a)], title XV, § 1530(c)(8), Aug. 5, 1997, [111 Stat. 1044], 1078.)