838 / Are transfers made for insufficient consideration includable in a decedent’s gross estate under IRC Section 2043?

If any one of the transfers described in IRC Sections 2035 through 2038 and 2041 is made for consideration in money or money’s worth, but the consideration is not adequate and full, the excess of the fair market value of the property transferred over the consideration received is the amount includable in the gross estate.¹ There is a split of authority over whether adequate and full consideration is measured by reference to what would otherwise be included in the estate or using time value of money discounts.²

In general, for purposes of the estate tax, a relinquishment or promised relinquishment of dower or curtesy, or of a statutory substitute, or of other marital rights in the decedent’s property or estate, is not considered consideration “in money or money’s worth.” However, an exception is made for the limited purpose of allowing a deduction from the gross estate in the case of a transfer which meets the following conditions: Where two spouses enter into a written agreement relative to their marital and property rights and divorce occurs within the three-year period beginning on the date one year before the agreement is entered into, any transfer of property or interests in property made pursuant to the agreement to either spouse in settlement of marital or property rights is deemed to be a transfer made for a full and adequate consideration in money or money’s worth. The deduction allowed is for the value of the property transferred as a claim against the estate (see Q 847).