Abstract
An issue that has vexed courts, estate planners, and commentators is how to ascertain the adequacy of consideration when a property owner sells a remainder interest in the property and retains a life estate. For the exclusion to apply, must the consideration received for the remainder simply equal the value of the remainder or must it equal the value of the entire property? A substantial body of case law—developed largely in the context of the so-called "widow's election"—holds the consideration must equal the full value of the property. However, the Third Circuit in D'Ambrosio in 1996 and the Fifth Circuit in Wheeler in 1997 held that consideration received in a simple sale of a remainder is adequate—and hence the exclusion applies—where the consideration merely equals the actuarial value of the remainder on the date of sale. More recently, the Ninth Circuit in Magnin, overruling one of its own decisions, adopted the D'Ambrosio-Wheeler test for "full consideration." (This article will sometimes refer to D'Ambrosio, Wheeler, and Magnin collectively as the "D'Ambrosio trilogy").
This issue is of more than academic interest. If the holdings of the D'Ambrosio trilogy are correct, existing case law regarding the widow's election (hereinafter "spousal election") is arguably wrong. If so, estate tax planners will have acquired a valuable tool, albeit one subject to serious income tax risks, that would apparently enable a couple to pass one-half or more of their combined property to the next generation free of any gift or estate tax in many cases and to enjoy significant transfer tax savings in virtually every case.
Recommended Citation
Ronald H. Jensen,
Estate and Gift Tax Effects of Selling a Remainder: Having D'Ambrosio, Wheeler and Magnin Changed the Rules?,
4 Fla. Tax Rev.
(2001).
Available at: https://scholarship.law.ufl.edu/ftr/vol4/iss1/11