Contingencies and the Estate Tax

Abstract

Contingencies... may assume an infinite variety of shapes and forms to suit the needs of the transferor. A stated contingency may represent a strong probability, and perhaps even a practical certainty, that the property will shortly return to the transferor. On the other hand, the possibility of regaining the property may be so remote as to be essentially nonexistent.

As one federal court reiterated, "the basic purpose of the estate tax 'is to bring within the gross estate of the transferor that which he gave upon a contingency terminable at his death.

Contingencies indicate probabilities. If a decedent dies owning a lottery ticket, the value of that ticket is included in his gross estate. In this instance, the decedent owns the property and it is just the nature of the property itself that involves a contingency related to its value. Because the lottery has not yet occurred, the value of that ticket would be its cost, reflecting the unlikelihood that decedent, like any other lottery ticket owner, is holding a "winning" ticket. If decedent can possess other types of property that depend on the happening of an event that has not occurred at his death, should that unvested property be included in his gross estate, although similarly discounted to reflect that probability? On the other hand, what if decedent's death extinguishes the possibility that he will ever own the property? In that instance, should the testamentary nature of the transfer and abuse potential require an artificial rule of inclusion at full value? In that context, to what extent should the fact that the contingency is donor created affect inclusion and valuation rules? Overall, should there be any de minimis rule to deal with remote contingencies?