Disclaimer of Interests and Powers

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 20 and 25

[REG-208215-91]

RIN 1545-AR52

Disclaimer of Interests and Powers

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the

treatment of disclaimers for estate and gift tax purposes. The

regulations propose to clarify certain provisions governing the

disclaimer of property interests and powers and, in addition, to

conform the regulations to court decisions holding the current

regulation invalid with respect to the disclaimer of joint property

interests. The proposed regulations will affect persons who disclaim

interests, powers or interests in jointly owned property after the

effective date of these regulations.

DATES: Written comments and requests for a public hearing must be

received by November 19, 1996.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-208215-91), room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered between the

hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-208215-91), Courier's

Desk Internal Revenue Service, 1111 Constitution Avenue NW, Washington,

DC. Alternately, taxpayers may submit comments electronically via the

Internet by selecting the ``Tax Regs'' option of the IRS Home Page, or

by submitting comments directly to the IRS Internet site at http://

www.irs.ustreas.gov/prod/tax__ regs/comments.html.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,

Dale Carlton, (202) 622-3090; concerning submissions, Michael

Slaughter, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document proposes to amend the Estate and Gift Tax Regulations

(26 CFR parts 20 and 25) under sections 2041, 2046, 2056, 2511, 2514,

and 2518, relating to the disclaimer of interests in property and

powers over property.

1. Interests and Powers Subject to the Disclaimer Rules

Under section 2518(a), if a person makes a qualified disclaimer,

then for transfer tax purposes, the interest disclaimed is treated as

never having passed to the person disclaiming. Under section

2518(b)(2)(A), in order to have a qualified disclaimer, an interest

must be disclaimed within 9 months of the date of ``the transfer

creating the interest'' in the person disclaiming. A person to whom any

interest passes by reason of the exercise or lapse of a general power

of appointment must disclaim the interest passing within 9 months after

the exercise or lapse.

The current regulations provide that section 2518 applies to the

disclaimer of interests or powers created pursuant to ``taxable

transfers'' made after December 31, 1976. They further provide that the

9-month period within which the disclaimer must be made is to be

determined with reference to the ``taxable transfer'' creating the

interest in the disclaimant. The term ``taxable transfer'' was

incorporated into the regulation based on a statement in the

legislative history underlying the enactment of section 2518. H.R.

Conf. Rep. No. 1515, 94th Cong., 2d Sess. 623 (1976).

Because the reference point under the regulation is the ``taxable

transfer'' creating the interest, the existing regulation could be

viewed as implying that the disclaimer of an interest created in a

transfer that is outside the scope of the estate or gift tax need not

comply with the requirements of section 2518. For example, if the

disclaimed property constitutes an interest in foreign situs property

created pursuant to a transfer by a nonresident alien donor or

decedent, the transfer by the nonresident alien would not be within the

scope of the gift tax or estate tax. However, a disclaimer of such an

interest would have to comply with section 2518; otherwise, there could

be transfer tax consequences to the disclaimant.

Similarly, the regulations do not specifically address the

disclaimer of a property interest passing as a result of the lapse or

release of a general power of appointment created on or before October

21, 1942. Under sections 2041(a)(1) and 2514(a), the lapse or release

of a pre-1942 power is not subject to transfer tax.

The scope of the term ``taxable transfer'', as used in

Sec. 25.2511-1(c)(2), a related provision governing the disclaimer of

interests created in taxable transfers made prior to January 1, 1977,

was considered in the Eighth Circuit

[[Page 43198]]

decision in United States v. Irvine, 981 F.2d 991 (8th Cir. 1992),

rev'd, 114 S.Ct 1473 (1994), and in Ordway v. United States, 908 F.2d

890 (11th Cir. 1991). In these cases, the disclaimant argued that a

disclaimer that did not satisfy the requirements of Sec. 25.2511-

1(c)(2) was nonetheless effective for estate and gift tax purposes

because the trust interest that was disclaimed was created pursuant to

a transfer in trust made prior to the enactment of the federal gift

tax. Accordingly, the disclaimant argued that the interest was not

created in a ``taxable transfer'' prior to January 1, 1977, the

regulation did not apply and the disclaimer had only to be effective

under state law to avoid federal tax. The Service argued in both cases

that the term ``taxable transfer'' references a generic completed gift

under Sec. 25.2511-2 of the regulations. The Eleventh Circuit agreed

with the Service in Ordway, while the Eighth Circuit disagreed in

Irvine. The Supreme Court did not resolve this issue in its review of

Irvine. The Court concluded that even if Sec. 25.2511-2 did not apply,

the disclaimer caused the transfer of an interest that had not been

timely disclaimed, and the transfer was subject to gift tax. In view of

the conflicting Eighth and Eleventh Circuit decisions in Irvine and

Ordway, the Treasury and the IRS believe that it is appropriate to

clarify the regulations.

2. Disclaimer of Jointly-Owned Property

The current regulations provide, in general, that in order to be a

qualified disclaimer under section 2518, a surviving joint tenant's

disclaimer of both an interest passing to the joint tenant on the

creation of the tenancy, and the survivorship interest in the joint

tenancy or tenancy by the entirety, must be made within 9 months after

the transfer creating the tenancy. Further, a joint tenant cannot make

a qualified disclaimer of any portion of a joint interest attributable

to consideration furnished by that tenant. t

Section 25.2518-2(c)(4)(ii) provides a special rule with respect to

joint tenancies and tenancies by the entirety in real property created

after 1976 but prior to 1982. During that period, section 2515 applied

in determining the gift tax consequences of the creation of a joint

tenancy with right of survivorship or tenancy by the entirety in real

property between husband and wife. Under section 2515, the creation of

the tenancy was not treated as a gift subject to gift tax unless the

parties elected to treat the creation of the tenancy as a gift. Rather,

a transfer subject to gift tax occurs on the termination of the tenancy

(other than by reason of the death of one of the tenants) if the

proceeds of termination are not divided according to the consideration

furnished by each party to the tenancy. Under Sec. 25.2518-2(c)(4)(ii),

in general, an interest in a tenancy created between 1976 and 1982 can

be disclaimed within 9 months of the date of death of the first joint

tenant to die, provided no election was made under section 2515 to

treat the creation of the tenancy as a gift. The disclaimant can

disclaim up to the portion of the tenancy included in the decedent's

gross estate under section 2040.

Section 2515 was enacted in the Internal Revenue Code of 1954,

effective for tenancies created after December 31, 1954, and was

repealed with respect to tenancies created after December 31, 1981, by

the Economic Recovery Tax Act of 1981. The Technical and Miscellaneous

Revenue Act of 1988 added section 2523(i)(3) which provides that, where

the spouse of a donor is not a citizen of the United States, the

principles of section 2515, as such section was in effect before its

repeal, shall apply (except for the provisions providing for an

election), in determining the gift tax consequences of the creation of

a joint tenancy or tenancy by the entirety in real property between

husband and wife.

Although section 2515 was effective for tenancies created after

1954 and before 1982, and, in addition, the principles of section 2515

are currently effective for tenancies created on or after July 14,

1988, where the donee spouse is not a citizen, the special rule in the

current regulation applies only to tenancies subject to section 2515

created after 1976 and before 1982.

The validity of the current regulations with respect to joint

interests that are unilaterally severable has been the subject of

repeated litigation. In Kennedy v. Commissioner, 804 F.2d 1332 (7th

Cir. 1986), the court held that the surviving spouse's survivorship

interest in the decedent's one-half interest in jointly held real

property was created on the decedent's death since, prior to that time,

the decedent could have unilaterally severed the interest and defeated

the spouse's survivorship right in that interest. Accordingly, the

court held that the survivorship interest could be disclaimed within 9

months of the decedent's death. The court concluded that the current

regulations are invalid to the extent that they require a survivorship

interest in a severable joint tenancy to be disclaimed within 9 months

of the creation of the tenancy. In Estate of Dancy v. Commissioner, 872

F.2d 84 (4th Cir. 1989) (involving personal property), and McDonald v.

Commissioner, 853 F.2d 1494 (8th Cir. 1988) (involving real property),

the courts also held the regulations invalid.

In McDonald, the Eighth Circuit remanded the case to the Tax Court

to determine if the disclaimer was otherwise qualified under section

2518. On remand, the Service argued that since the joint property was

attributable entirely to consideration furnished by the disclaiming

spouse, the spouse could not disclaim any interest in the property

under section 2518. The Tax Court rejected this argument in McDonald v.

Commissioner, T.C.M. 1989-140.

The Service announced in A.O.D. CC-1990-06 (Feb. 7, 1990) that it

will follow these decisions.

3. Disclaimer of Joint Bank Accounts

For gift tax purposes, the creation of a joint bank account is

treated as an incomplete transfer since, generally, the contributing

joint tenant may unilaterally withdraw contributed funds without the

consent of the other joint tenant. Accordingly, unless a

noncontributing joint tenant has withdrawn the funds, the transfer to a

joint bank account does not become complete before the death of the

first joint tenant.

Explanation of Provisions

1. Interests and Powers Subject to the Disclaimer Rules

The proposed amendment clarifies that the application of section

2518, or the commencement of the 9-month period, is not dependent on

the actual imposition of a transfer tax when the interest to be

disclaimed is created. The proposed amendment substitutes the statutory

language of section 2518(b)(2)(A), ``transfer creating the interest,''

for ``taxable transfer'' as the reference point for determining the

scope of the regulations as well as when the time period for making the

disclaimer commences. Under the proposed amendment, the term ``transfer

creating the interest'' includes any inter vivos transfer that would be

a completed gift under the gift tax regulations, whether or not a gift

tax liability arises on the transfer and whether or not the transfer

comes within the scope of the gift tax. Similarly, the amendment

clarifies that, for testamentary transfers, the transfer creating the

interest occurs on the date of the decedent's death, whether or not an

estate tax is imposed on the transfer and whether or not the transfer

comes within the scope of the estate tax. The amendment also clarifies

that, in the

[[Page 43199]]

case of a disclaimer of an interest passing pursuant to the exercise,

lapse, or release of a general power of appointment, the disclaimer

must be made within 9 months of the exercise, lapse, or release of the

power, regardless of whether the exercise, lapse, or release is subject

to estate or gift tax. The proposed regulations make conforming changes

to the estate and gift tax regulations.

2. Disclaimer of Jointly-Owned Property

The proposed amendments would revise the regulations to provide

that, in general, if a joint tenancy may be unilaterally severed by

either party, then a surviving joint tenant may disclaim the one-half

survivorship interest in property held in joint tenancy with right of

survivorship within 9 months of the death of the first joint tenant to

die, even if the surviving joint tenant provided some or all of the

consideration for the creation of the tenancy.

The rationale of the courts in Dancy, Kennedy, and McDonald does

not apply to joint interests that cannot be unilaterally severed under

applicable state law, such as interests held in tenancy by the

entirety. In tenancies by the entirety, the donee spouse's joint

interest in the property that cannot be unilaterally severed is created

on the date the tenancy is created. Therefore, the proposed amendment

to the regulations would reaffirm that any interest in a nonseverable

cotenancy, including the survivorship interest, must be disclaimed

within 9 months of the date of the creation of the tenancy. However,

the Service requests comments on whether or under what circumstances

(e.g., tenancy by the entirety ownership of a personal residence) the

rule applicable to unilaterally severable interests should apply to

interests that are not unilaterally severable.

The proposed amendments would extend the special rule in

Sec. 25.2518-2(c)(4)(ii) to tenancies created after December 31, 1954,

and on or before December 31, 1981, the entire period during which

section 2515 was in effect. In addition, the special rule would be

expanded to include tenancies created on or after July 14, 1988, where

the spouse of the donor is not a United States citizen. Under section

2523(i)(3), the creation of such tenancies is also subject to the rules

of former section 2515. The special rule reflects the gift tax

treatment of the creation of a joint tenancy or tenancy by the entirety

that was subject to section 2515. The relief afforded by the special

rule will apply to all tenancies that were subject on creation to

section 2515. Under the special rule, the amount that the surviving

joint tenant can disclaim is dependent on the amount that is includible

in the decedent's gross estate.

3. Disclaimer of Joint Bank Accounts

The proposed regulations provide specific rules to address the

disclaimer of joint bank accounts. Because the transfer creating the

interest in the funds remaining in the bank account at the death of the

first joint tenant to die occurs at that tenant's death, the 9-month

period for making the qualified disclaimer commences on the death of

the first joint tenant.

The proposed regulations also clarify that a surviving joint tenant

cannot disclaim any portion of the account attributable to that

survivor's contribution to the account. These contributed funds are

property owned by the survivor during the cotenancy and the survivor

cannot disclaim property the survivor has always owned and never

transferred. Further, the proposed regulations clarify that this rule

applies even if only one-half of the property is included in the

decedent's gross estate under section 2040(b) because the joint tenants

are married.

The proposed regulations also clarify the estate tax treatment of a

disclaimed interest in a joint bank account. State law generally treats

a disclaimant as predeceasing the decedent with respect to the

disclaimed interest. The disclaimed interest in a joint bank account

(the creation of which is treated as an incomplete gift under the gift

tax regulations), would lose its character as joint property and pass

through the decedent's probate estate. Accordingly, under such

circumstances, the interest disclaimed is subject to inclusion in the

decedent's gross estate under section 2033, rather than section 2040(a)

(providing for inclusion based on the contribution of each tenant) or

section 2040(b) (providing for inclusion of one-half the property in

the case of certain joint tenancies between spouses). The balance of

the account not subject to the disclaimer retains its character as

joint property and is includible in the decedent's gross estate under

either section 2040(a) or section 2040(b).

These rules are also made applicable to joint brokerage accounts,

since the transfer tax treatment of these accounts generally parallels

the treatment of joint bank accounts. See Rev. Rul. 69-148, 1969-1 C.B.

226.

Proposed Effective Dates

The amendments to Secs. 25.2518-1(a) and 25.2518-2(c)(3)

(substituting the statutory language in section 2518(b)(2)(A)

``transfer creating the interest,'' for ``taxable transfer'') and

conforming changes to Secs. 20.2041-3(d)(6)(i), 20.2046-1, 20.2056(d)-

2(a) and (b), 25.2511-1(c)(1), 25.2514-3(c)(5), are proposed to be

effective for transfers creating the interest or power to be disclaimed

made after the date of publication as final regulations in the Federal

Register. However, Treasury and the IRS do not view these amendments as

prescribing any new rules for applying section 2518.

The amendments to Sec. 25.2518-2(c)(4) (relating to the disclaimer

of joint property and bank accounts) are proposed to be effective for

disclaimers made after the date these regulations are published in the

Federal Register as final regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in E.O. 12866.

Therefore, a regulatory assessment is not required. It has also been

determined that section 553(b) of the Administrative Procedures Act (5

U.S.C. chapter 5) does not apply to these regulations and because the

regulations do not impose a collection of information on small

entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. Pursuant to section 7805(f) of the Internal Revenue Code, this

notice of proposed rulemaking will be submitted to the Chief Counsel

for Advocacy of the Small Business Administration for comment on its

impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original

and eight (8) copies) that are submitted timely to the IRS. All

comments will be available for public inspection and copying. A public

hearing may be scheduled if requested in writing by any person that

timely submits written comments. If a public hearing is scheduled,

notice of the date, time, and place of the hearing will be published in

the Federal Register.

Drafting Information

The principal author of these regulations is Dale Carlton, Office

of the Assistant Chief Counsel (Passthroughs and Special Industries).

However, personnel from other offices of the IRS and Treasury

Department participated in their development.

[[Page 43200]]

List of Subjects

26 CFR Part 20

Estate taxes, Reporting and recordkeeping requirements.

26 CFR Part 25

Gift taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 20 and 25 are proposed to be amended as

follows:

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,

1954

Paragraph 1. The authority citation for part 20 continues to read

in part:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 20.2041-3 is amended as follows:

1. Paragraph (d)(6)(i) is amended by revising the first sentence

and by adding a new second sentence.

2. Paragraph (d)(6)(iii) is added.

The additions and revisions read as follows:

Sec. 20.2041-3 Powers of appointment created after October 21, 1942.

* * * * *

(d) * * *

(6)(i) A disclaimer or renunciation of a general power of

appointment created in a transfer made after December 31, 1976, is not

considered to be the release of the power if the disclaimer or

renunciation is a qualified disclaimer as described in section 2518 and

the corresponding regulations. For rules relating to when the transfer

creating the power occurs, see Sec. 25.2518-2(c)(3). * * *

* * * * *

(iii) The first and second sentences of paragraph (d)(6)(i) of this

section are effective for transfers creating the power to be disclaimed

made after the date of publication as final regulations in the Federal

Register.

* * * * *

Par. 3. Section 20.2046-1 is revised to read as follows:

Sec. 20.2046-1 Disclaimed property.

(a) This section shall apply to the disclaimer or renunciation of

an interest in the person disclaiming by a transfer made after December

31, 1976. For rules relating to when the transfer creating the interest

occurs, see Sec. 25.2518-2 (c)(3) and (c)(4) of chapter 12. 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.

(b) The first and second sentences of this section are effective

for transfers creating the interest to be disclaimed made after the

date of publication as final regulations in the Federal Register.

Par. 4. Section 20.2056(d)-2 is amended as follows:

1. Paragraph (a) is amended by revising the first sentence and

adding a new sentence after the first sentence, and paragraph (b) is

revised.

2. A new paragraph (c) is added.

The additions and revisions read as follows:

Sec. 20.2056(d)-2 Marital deduction; effect of disclaimers of post-

December 31, 1976 transfers.

(a) * * * If a surviving spouse disclaims an interest in property

passing to such spouse from the decedent created in a transfer made

after December 31, 1976, the effectiveness of the disclaimer will be

determined by section 2518 and the corresponding regulations. For rules

relating to when the transfer creating the interest occurs, see

Sec. 25.2518-2 (c)(3) and (c)(4) of chapter 12. * * *

(b) Disclaimer by a person other than a surviving spouse. If an

interest in property passes to a person other than the surviving spouse

from a decedent, and the interest is created in a transfer made after

December 31, 1976, and--

(1) The person other than the surviving spouse makes a qualified

disclaimer with respect to such interest, 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. For rules

relating to when the transfer creating the interest occurs, see

Sec. 25.2518-2 (c)(3) and (c)(4) of chapter 12.

(c) Effective date. The first and second sentences of paragraphs

(a) and (b) of this section are effective for transfers creating the

interest to be disclaimed made after the date of publication as final

regulations in the Federal Register.

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

Par. 5. The authority citation for part 25 is amended by adding an

entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 25.2518-2 is also issued

under 26 U.S.C. 2518(b). * * *

Par. 6. Section 25.2511-1 is amended as follows:

1. In paragraph (c)(1), the fourth sentence is revised.

2. A new paragraph (c)(3) is added.

The additions and revisions read as follows:

Sec. 25.2511-1 Transfers in general.

* * * * *

(c)(1) * * * However, in the case of a transfer creating an

interest in property (within the meaning of Sec. 25.2518-2 (c)(3) and

(c)(4)) 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 interest passes to a different donee. * * *

* * * * *

(3) The fourth sentence of paragraph (c)(1) of this section is

effective for transfers creating an interest to be disclaimed made

after the date of publication as final regulations in the Federal

Register.

* * * * *

Par. 7. Section 25.2514-3 is amended as follows:

1. Paragraph (c)(5) is amended by revising the first sentence and

adding a new second sentence.

2. A new paragraph (c)(7) is added.

The additions and revisions read as follows:

Sec. 25.2514-3 Powers of appointment created after October 21, 1942.

* * * * *

(c) * * *

(5) * * * A disclaimer or renunciation of a general power of

appointment created in a transfer made after December 31, 1976, 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. For rules relating to

when a transfer creating the power occurs, see Sec. 25.2518-2(c)(3). *

* *

* * * * *

(7) The first and second sentences of paragraph (5) of

Sec. 25.2514-3(c) are effective for transfers creating the power to be

disclaimed made after the date of publication as final regulations in

the Federal Register.

* * * * *

Par. 8. Section 25.2518-1 is amended as follows:

1. Paragraph (a)(1) is revised.

2. In paragraph (a)(2), the third, fourth, and fifth sentences of

the Example are revised and a new sentence is added after the third

sentence.

3. A new paragraph (a)(3) is added.

The additions and revisions read as follows:

[[Page 43201]]

Sec. 25.2518-1 Qualified disclaimers of property; In general.

(a) * * * (1) In general. The rules described in Secs. 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 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 creating an interest occurs, see Sec. 25.2518-2(c) (3) and

(4).

(2) * * * The transfer creating the remainder interest in the

trust occurred in 1968. See Sec. 25.2511-1(c)(2). Therefore, section

2518 does not apply to the disclaimer of the remainder interest

because the transfer creating the interest was made prior to January

1, 1977. If, however, W had caused the gift to be incomplete by also

retaining the power to designate the person or persons to receive

the trust principal at death, and, as a result, no transfer (within

the meaning of Sec. 25.2511-1(c)(2)) of the remainder interest was

made 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.

(3) Section 25.2518-1(a)(1) is effective for transfers creating the

interest to be disclaimed made after the date of publication as final

regulations in the Federal Register.

* * * * *

Par. 9. Section 25.2518-2 is amended as follows:

1. Paragraph (c)(3) is redesignated as paragraph (c)(3)(i).

2. Newly designated paragraph (c)(3)(i) is amended as follows:

a. In the first, eighth, and eleventh sentences, the word

``taxable'' is removed in each place it appears.

b. In the third and ninth sentences, the language ``taxable

transfer'' is removed and ``transfer creating an interest'' is added in

each place it appears.

c. The fourth, fifth, sixth, and seventh sentences are revised.

d. A new sentence is added after the fourth sentence.

3. A new paragraph (c)(3)(ii) is added.

4. Paragraph (c)(4) is revised.

5. In paragraph (c)(5), Example (7) is revised.

6. In paragraph (c)(5), Example (9) is redesignated as Example (13)

and newly designated Example (13) is revised.

7. In paragraph (c)(5), Example (8) is redesignated as Example (9)

and newly designated Example (9) is revised.

8. In paragraph (c)(5), Example (10) is redesignated as Example

(12) and the first sentence of newly designated Example (12) is

revised.

9. In paragraph (c)(5), new Examples (8), (10), (11), (14), and

(15), are added.

The additions and revisions read as follows:

Sec. 25.2518-2 Requirements for a qualified disclaimer.

* * * * *

(c) * * *

(3)(i) * * * With respect to transfers made by a decedent at death

or transfers that become irrevocable at death, the transfer creating

the interest occurs on the date of the decedent's death, even if an

estate tax is not imposed on the transfer. For example, a bequest of

foreign-situs property by a nonresident alien decedent is regarded as a

transfer creating an interest in property even if the transfer would

not be subject to estate tax. If there is a transfer creating an

interest in property during the transferor's lifetime and such interest

is later included in the transferor's gross estate for estate tax

purposes (or would have been included if such interest were subject to

estate tax), the 9-month period for making the qualified disclaimer is

determined with reference to the earlier transfer creating the

interest. In the case of a general power of appointment, the holder of

the power has a 9-month period after the transfer creating the power in

which to disclaim. If a person to whom any interest in property passes

by reason of the exercise, release, or lapse of a general power desires

to make a qualified disclaimer, the disclaimer must be made within a 9-

month period after the exercise, release, or lapse regardless of

whether the exercise, release, or lapse is subject to estate or gift

tax. * * *

(ii) Sentences 1, 3 through 10, and 12 of paragraph (c)(3)(i) of

this section are effective for transfers creating the interest to be

disclaimed made after the date of publication as final regulations in

the Federal Register.

(4) Joint property--(i) Interests that are unilaterally severable.

Except as provided in paragraph (c)(4)(iv) of this section with respect

to joint bank accounts and joint brokerage accounts, in the case of an

interest in a joint tenancy with right of survivorship or a tenancy by

the entirety that either joint tenant can sever unilaterally under

local law, a qualified disclaimer of the interest to which the

disclaimant succeeds as donee upon creation of the tenancy must be made

no later than 9 months after the creation of the tenancy. A qualified

disclaimer of the survivorship interest to which the survivor succeeds

by operation of law upon the death of the first joint tenant to die

must be made no later than 9 months after the death of the first joint

tenant to die. See, however, section 2518(b)(2)(B) for a special rule

in the case of disclaimers by persons under age 21. Except as provided

in paragraph (c)(4)(iii) of this section (with respect to certain

tenancies in real property created after 1954 and before 1982 and

certain tenancies created on or after July 14, 1988), the interest that

may be disclaimed within 9 months after the death of the first joint

tenant to die is the interest to which the disclaimant succeeds by

right of survivorship, regardless of the portion of the property

attributable to consideration furnished by the disclaimant and

regardless of the portion of the property that is included in the

decedent's gross estate under section 2040. See Sec. 25.2518-2(c)(5),

Example (7).

(ii) Interests that are not unilaterally severable. Except as

provided in paragraph (c)(4)(iii) of this section with respect to

interests created after 1954 and before 1982 and certain interests

created after July 14, 1988, if an interest in joint property with

right of survivorship or an interest held as a tenant by the entirety

is not unilaterally severable under local law, a qualified disclaimer

of the interest or any portion of the interest must be made no later

than 9 months after the transaction creating the tenancy. A tenant by

the entirety or other cotenant who cannot unilaterally sever the

interest under applicable local law cannot make a qualified disclaimer

of any portion of the joint interest to the extent attributable to

consideration furnished by that tenant even if the disclaimer is made

within 9 months of the creation of the tenancy. See Sec. 25.2518-

2(c)(5), Example (8).

(iii) Tenancies in real property between spouses created before

1982 and certain tenancies in real property between spouses created on

or after July 14, 1988. In the case of a joint tenancy between spouses

or a tenancy by the entirety in real property created after 1954 and

before 1982 where no election was made under section 2515, or a joint

tenancy between spouses or a tenancy by the entirety in real property

created on or after July 14, 1988, to which section 2523(i)(3) applies

(relating to the creation of a tenancy where the spouse of the donor is

not a United States citizen), the surviving spouse must make a

qualified disclaimer no later than 9 months after the death of the

first spouse to die. The surviving spouse may disclaim any portion of

the joint interest that is includible in the decedent's gross estate

under section 2040. See Sec. 25.2518-2(c)(5), Examples (9) and (10).

[[Page 43202]]

(iv) Special rule for joint bank and brokerage accounts established

between spouses or between persons other than husband and wife. In the

case of a transfer to a joint bank account or a joint brokerage

account, if a transferor may unilaterally withdraw the transferor's own

contributions from the account without the consent of the other

cotenant, the transfer creating the survivor's interest in a 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 that surviving joint

tenant. See Sec. 25.2518-2(c)(5), Examples 13, 14 and 15, regarding the

treatment of disclaimed interests under sections 2518, 2033 and 2040.

(v) Effective date. This paragraph (c)(4) is effective for

disclaimers made after the date of publication as final regulations in

the Federal Register.

(5) Examples. * * *

* * * * *

Example (7). On February 1, 1990, A purchased real property with

A's funds. Title to the property was conveyed to ``A and B, as joint

tenants with right of survivorship.'' Under applicable state law,

the joint interest is unilaterally severable by either tenant. B

dies on May 1, 1997, and is survived by A. On January 1, 1998, A

disclaims the one-half survivorship interest in the property to

which A succeeds as a result of B's death. Assuming that the other

requirements of section 2518(b) are satisfied, A has made a

qualified disclaimer of the one-half survivorship interest (but not

the interest retained by A upon the creation of the tenancy, which

may not be disclaimed by A). The result is the same whether or not A

and B are married and regardless of the proportion of consideration

furnished by A and B in purchasing the property.

Example (8). On March 1, 1997, A purchases a parcel of real

property that is conveyed to A and A's spouse, B, as tenants by the

entirety. A provides the consideration for the purchase. Under

applicable state law, the tenancy cannot be unilaterally severed by

either tenant. In order to be a qualified disclaimer, any disclaimer

by B of B's interest in the property must be made within 9 months of

the creation of the tenancy (i.e., within 9 months of March 1,

1997). Since A provided the entire consideration for the property

and the tenancy is not unilaterally severable, A may not disclaim

any interest in the tenancy.

Example (9). 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, 1997. W can disclaim one-

half of the joint interest because this is the interest includible

in H's gross estate under section 2040(b). Assuming that W's

disclaimer is received by the executor of H's estate no later than 9

months after June 1, 1997, and the other requirements of section

2518(b) are satisfied, W's disclaimer of one-half of the property

would be a qualified disclaimer because the transfer which created

W's interest is treated as not occurring until H's death, since no

election was made under section 2515. The result would be the same

if the property was held in joint tenancy with right of survivorship

that was unilaterally severable under local law.

Example (10). Assume the same facts as in example (9) except

that the land was purchased on March 1, 1989, and W is not a United

States citizen. W has until 9 months after June 1, 1997, to make a

qualified disclaimer, and can disclaim the entire joint interest

because this is the interest includible in H's gross estate under

section 2040(a). The result would be the same if the property was

held in joint tenancy with right of survivorship that was

unilaterally severable under local law.

Example (11). In 1986, spouses A and B purchased a personal

residence taking title as joint tenants with right of survivorship.

Under applicable state law, the interest in the tenancy may be

unilaterally severed by either party. B dies on July 10, 1997. A

wishes to disclaim the one-half undivided interest to which A would

succeed by right of survivorship. If A makes the disclaimer, the

property interest would pass under B's will to their child C. C, an

adult, and A resided in the residence at B's death and will continue

to reside there in the future. A continues to own a one-half

undivided interest in the property. Assuming that the other

requirements of section 2518(b) are satisfied, A may make a

qualified disclaimer with respect to the one-half undivided

survivorship interest in the residence if A delivers the written

disclaimer to the personal representative of B's estate by April 10,

1998, since A is not deemed to have accepted the interest or any of

its benefits prior to that time and A's occupancy of the residence

after B's death is consistent with A's retained undivided ownership

interest.

Example (12). H and W, husband and wife, reside in state X, a

community property state. * * *

Example (13). On July 1, 1990, A opens a bank account that is

held jointly with B, A's spouse, and transfers $50,000 of A's money

to the account. A and B are United States citizens. A can regain the

entire account without B's consent. The transfer is not a completed

gift under Sec. 25.2511-1(h)(4). A dies on August 15, 1997, and B

disclaims the entire amount in the bank account on October 15, 1997.

Assuming that the remaining requirements of section 2518(b) are

satisfied, B made a qualified disclaimer under section 2518(a)

because the disclaimer was made within 9 months after A's death at

which time B had succeeded to full dominion and control over the

account. Under state law, B is treated as predeceasing A with

respect to the disclaimed interest. The disclaimed account balance

passes through A's probate estate and is no longer joint property

includible in A's gross estate under section 2040. The entire

account is, instead, includible in A's gross estate under section

2033. The result would be the same if A and B were not married.

Example (14). The facts are the same as Example (13), except

that B, rather than A, dies on August 15, 1997. A may not make a

qualified disclaimer with respect to any of the funds in the bank

account, because A furnished the funds for the entire account and A

did not relinquish dominion and control over the funds.

Example (15). The facts are the same as Example (13), except

that B disclaims 40 percent of the funds in the account. Since,

under state law, B is treated as predeceasing A with respect to the

disclaimed interest, the 40 percent portion of the account balance

that was disclaimed passes as part of A's probate estate, and is no

longer characterized as joint property. This 40 percent portion of

the account balance is, therefore, includible in A's gross estate

under section 2033. The remaining 60 percent of the account balance

that was not disclaimed retains its character as joint property and,

therefore, is includible in A's gross estate as provided in section

2040(b). Therefore, 30 percent (\1/2\ x 60 percent) of the account

balance is includible in A's gross estate under section 2040(b), and

a total of 70 percent of the aggregate account balance is includible

in A's gross estate. If A and B were not married, then the 40

percent portion of the account subject to the disclaimer would be

includible in A's gross estate as provided in section 2033 and the

60 percent portion of the account not subject to the disclaimer

would be includible in A's gross estate as provided in section

2040(a), because A furnished all of the funds with respect to the

account.

Margaret Milner Richardson,

Commissioner of Internal Revenue,

[FR Doc. 96-21091 Filed 8-20-96; 8:45 am]

BILLING CODE 4830-01-U