Contents

VALUATION OF PARTIAL INTERESTSThe value of a remainder interest in real property (such as a remainder interestin a personal residence 59 ) following only one life is determined under theestate tax rules, 60 using the interest rate and life contingencies prescribed for thedate of the gift. 61 If any part of the real property is subject to exhaustion, wearand tear, or obsolescence, however, a special factor must be used in valuing theremainder interest in that part. Further, if any part of the property is subject todepletion of its natural resources, the depletion is taken into account in determiningthe value of the remainder interest. 62If the valuation of the remainder interest in depreciable property dependson the continuation of one life, then, as noted, a special factor (carried to the fifthdecimal place) must be used. The special factor is to be computed on the basis ofthe interest rate and life contingencies prescribed in the estate tax regulations 63and on the assumption that the property depreciates on a straight-line basis overits estimated useful life. 64§ 11.4 NONSTANDARD ACTUARIAL FACTORSThe monthly interest rate rules do not apply for purposes of any provision thatmay be specified in the tax regulations. 65 As noted, the courts consistently recognizethe need to use the standard actuarial factors prescribed by the regulations.66 At the same time, the courts recognized that use of the standardactuarial factors is inappropriate in certain instances. 67 The U.S. Tax Court heldthat the standard actuarial factors cannot be used if the individual whose life isthe measuring life is terminally ill. 68 Also, a court refused to ascribe value to anincome interest (for purposes of the estate tax credit for tax on prior transfers 69 )when the death of the transferee was simultaneous with the death of the transferor.70 Further, the IRS ruled that, in cases in which the individual’s death is59 See § 15.2(a).60 Reg. § 20.2031-7A.61 Reg. § 1.170A-12(b)(1).62 Id.63 Reg. § 20.2031-7.64 Reg. § 1.170A-12(b)(2). See § 2.19 (as to depreciation).65 IRC § 7520(b).66 See text accompanied by note 23.67 See, e.g., Robinette v. Helvering, 318 U.S. 184 (1943) (reversionary interest with several interdependentcontingencies); Stark v. United States, 477 F.2d 131 (8th Cir.), cert. denied, 414 U.S. 975 (1973) (closelyheld stock that was not publicly traded and did not pay dividends); O’Reilly v. Commissioner, 973 F.2d 1403(8th Cir. 1992), remanded, 67 T.C.M. (CCH) 2176 (1994) (disparity between a 0.2 percent yield and 10percent tables produced unrealistic and unreasonable result); Froh v. Commissioner, 100 T.C. 1 (1993)(similar holding involving depletable property); Commissioner v. Sternberger Estate, 348 U.S. 187 (1955)(charitable bequest that would occur only if decedent’s unmarried daughter died without issue survivingher and her mother). One appellate court stated that “where there is sufficient evidence regarding the actuallife expectancy of a life tenant, the presumptive correctness of the Treasury tables will be overcome.” MiamiBeach First Nat’l Bank v. United States, 443 F.2d 116, 119–20 (5th Cir. 1971).68 See, e.g., McLendon Estate v. Commissioner, 135 F.3d 1017 (5th Cir. 1998), rev’g 72 T.C.M. (CCH) 42(1996); id., 96-1 U.S.T.C. 60,220 (5th Cir. 1995), rev’g & remanding 66 T.C.M. (CCH) 946 (1993); JenningsEstate v. Commissioner, 10 T.C. 323 (1948); Denbigh Estate v. Commissioner, 7 T.C. 387 (1946).69 IRC § 2013.70 Carter v. United States, 291 F.2d 63 (5th Cir. 1991). 400