Annuities And The Estate Tax

<div class="Section1">A married couple typically purchases a Medicaid compliant annuity if the two spouses are in unequal health positions to ensure that the healthy spouse—known as the "community" spouse—has sufficient income, while allowing the second, less healthy, spouse to qualify for Medicaid assistance in paying for long-term care expenses, typically within a nursing home.</div><br /> <div class="Section1"><br /> <br /> Rather than treating the purchase of the annuity as an impermissible asset transfer effected in order to meet Medicaid's means-tested eligibility requirements, if the requirements discussed below are satisfied, the federal Deficit Reduction Act (DRA) treats the purchase as a permissible exempt investment, and the annuity payout stream is shielded as the community spouse's income.<br /> <br /> In order to qualify as a Medicaid compliant annuity under the DRA, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable to the community spouse, the contract must be irrevocable, and the payment term must be based on the life expectancy of the community spouse.<br /> <br /> This is because, in a situation where one spouse requires long-term care and the other remains in the community, the assets of the community spouse are counted—up to a certain level—in determining whether the institutionalized spouse qualifies for Medicaid, but the <em>income</em> of that spouse is not counted.<br /> <br /> Further, the state must be named as the remainder beneficiary on the contract, allowing it to receive up to the amount that it has paid for the institutionalized spouse's long-term care.<br /> <br /> </div>

<div class="Section1">The value of an annuity or other payment receivable under a tax-sheltered annuity (&ldquo;TSA&rdquo;) by the beneficiary of a deceased TSA annuitant is includable in the annuitant&rsquo;s estate under the rules discussed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="620">620</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="629">629</a>.In reading those rules, remember that any contribution to the purchase of the annuity made by the decedent&rsquo;s employer or former employer is considered to be contributed by the decedent if made by reason of his or her employment.<a href="#_ftn1" name="_ftnref1">¹</a> Note that in the case of payments received as insurance on the life of a decedent ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4029">4029</a>), estate taxation is determined under the rules of IRC Section&nbsp;2042 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="80">80</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="93">93</a>), not under IRC Section&nbsp;2039.<div class="Section1"><br /> <br /> The Tax Reform Act of 1984 repealed the estate tax exclusion discussed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="634">634</a> generally for estates of decedents dying after 1984. The repeal does not apply to the estate of any decedent who was a plan participant in pay status on December&nbsp;31, 1984, and irrevocably elected the form of the benefit before July&nbsp;18, 1984.<a href="#_ftn2" name="_ftnref2">²</a> The Tax Reform Act of 1986 provided that these conditions are considered met if the decedent separated from service before January&nbsp;1, 1985, and does not change the form of benefit before death.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(b).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; TRA &rsquo;84, &sect; 525.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; TRA &rsquo;86, &sect; 1852(e)(3).<br /> <br /> </div></div><br />

<div class="Section1">Yes.<div class="Section1"><br /> <br /> If an employee was receiving payments under the contract when he or she died, or if the employee would have had the right to receive payments had he or she lived, the value of the death benefit is includable in the employee&rsquo;s gross estate.<a href="#_ftn1" name="_ftnref1">¹</a> It is immaterial whether the employee&rsquo;s rights were forfeitable or nonforfeitable before death.<a href="#_ftn2" name="_ftnref2">²</a> Premiums paid by the employer are considered as having been paid by the employee himself.<a href="#_ftn3" name="_ftnref3">³</a> For tax sheltered annuities purchased for employees of tax-exempt organizations and public schools, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="633">633</a>.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 20.2039-1.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(b). <em>All v. McCobb</em>, 321 F.2d 633 (2d Cir. 1963); <em>Estate of Bahen v. Commissioner</em>, 305 F.2d 827 (Ct. Cl. 1962); <em>Estate of Wadewitz v. Commissioner</em>, 39 TC 925 (1962), <em>aff&rsquo;d</em>, 339 F.2d 980 (7th Cir. 1964).<br /> <br /> </div></div><br />

<div class="Section1">Unless an employer is an organization described in IRC Section&nbsp;170(b)(1)(A)(ii) or (vi) or a religious organization, other than a trust, and is exempt under IRC Section&nbsp;501(a), there is no estate tax exclusion for the death or survivor benefit.<a href="#_ftn1" name="_ftnref1">¹</a> These organizations, which frequently are referred to as &ldquo;REC organizations&rdquo; for religious, educational, and charitable organizations, include educational institutions other than public schools, churches, and charities that receive substantial support from a government or the general public. The IRS has taken the position that the exclusion does not apply to a contract purchased by an employer that is an integral part of a state or local government, such as a public school, college, university, or hospital.<a href="#_ftn2" name="_ftnref2">²</a> The Tax Court, however, has held that the exclusion applied to contracts bought by a state university and a city board of education.<a href="#_ftn3" name="_ftnref3">³</a><div class="Section1"><br /> <br /> If an employer is one of the eligible types, an estate tax exclusion is available provided the benefit is payable to some beneficiary other than an employee&rsquo;s estate. The exclusion applies only to amounts attributable to employer contributions, that is, to premiums that were excludable from the employee&rsquo;s gross income under the exclusion allowance rule ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4037">4037</a>) and to deductible employee contributions.<br /> <br /> Any portion of premiums that were not excludable from an employee&rsquo;s gross income or were not deductible employee contributions are treated as employee contributions and a corresponding portion of the value of the death or survivor benefit is includable in the employee&rsquo;s gross estate.<a href="#_ftn4" name="_ftnref4">⁴</a> For this purpose, any one- year term costs of pure life protection that were includable in the employee&rsquo;s gross income are treated as employee contributions.<a href="#_ftn5" name="_ftnref5">⁵</a> The estate tax exclusion appears applicable whether payments are made in a single sum or in several payments. If a benefit is payable to an employee&rsquo;s estate, the entire value is includable in the employee&rsquo;s gross estate even though all premiums have come within the exclusion allowance.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> With respect to the estate of a decedent dying after 1982 and before 1985, the aggregate estate tax exclusion applicable to survivor benefits payable under a qualified plan ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3733">3733</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3817">3817</a>), a tax sheltered annuity, or an individual retirement plan ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3641">3641</a>) cannot exceed $100,000.<a href="#_ftn7" name="_ftnref7">⁷</a> TRA &rsquo;84 also amended TEFRA to provide that the $100,000 limit shall not apply to the estate of any decedent who was a plan participant on pay status on December&nbsp;31, 1982, and who irrevocably elected the form of benefit before January&nbsp;1, 1983.<a href="#_ftn8" name="_ftnref8">⁸</a>&nbsp;The Tax Reform Act of 1986 provided that these conditions are considered met if the decedent separated from service before January&nbsp;1, 1983, and does not change the form of benefit before death.<a href="#_ftn9" name="_ftnref9">⁹</a> For estates of decedents dying before 1983, the exclusion (as described) is unlimited.<br /> <br /> The estate tax exclusion applies to the value of a death benefit receivable under a retirement annuity contract. Payments to a retirement fund by a REC organization will be regarded as the purchase of a retirement annuity contract for the organization&rsquo;s employee if the payments are made pursuant to a contractual arrangement between the organization and the custodian of the fund whereby the custodian of the fund is obligated to provide an annuity to the employee. Thus, if a state university makes payments under this kind of arrangement to a state retirement system on behalf of a professor employed by the university, the value of survivor benefits payable from the system following the professor&rsquo;s death is eligible for the estate tax exclusion in the professor&rsquo;s estate.<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> Although it is clear that a tax-sheltered annuity may provide incidental life insurance protection ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4029">4029</a>), it is not entirely clear what the estate tax results will be where the death benefit consists of life insurance proceeds payable by reason of the insured&rsquo;s death prior to the maturity of the contract. A technical advice memorandum indicates that the term costs of life insurance protection, unlike the results under a qualified pension plan, will be treated as nondeductible employee contributions for estate tax purposes.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> The estate tax exclusion under IRC Section&nbsp;2039(c) is applicable only to the estate of a decedent who was the employee and not to the estate of a non-employee beneficiary.<a href="#_ftn12" name="_ftnref12">¹²</a> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3712">3712</a> for the estate tax exclusion applicable to amounts rolled over from a tax-sheltered annuity to an IRA.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(c)(3), prior to repeal.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 60-384, 1960-2 CB 172; Rev. Rul. 68-294, 1968-1 CB 46 (obsoleted by Rev. Rul. 95-71, 1995-2 CB 323).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Johnson v. Commissioner</em>, 56 TC 944 (1971), acq. 1973-2 CB 2 (followed in Let. Rul. 7817098); <em>Estate of Green v. Commissioner</em>, 82 TC 843 (1984).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(c)(3).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp;&nbsp; Memorandum, 1967, Pension Plan Guide (CCH), Pre-1986 IRS Tax Releases, &para; 17,337.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(c)(3).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039(c), (g), as amended and added by TEFRA, and before repeal by TRA &rsquo;84.<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;&nbsp;&nbsp;&nbsp; TRA &rsquo;84, &sect; 525.<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;&nbsp;&nbsp;&nbsp; TRA &rsquo;86, &sect; 1852(e)(3).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.&nbsp;&nbsp; Rev. Rul. 79-301, 1979-2 CB 327, obsoleted by Rev. Rul. 88-85, 1988-2 CB 333.<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.&nbsp;&nbsp; Memorandum, 1967, Pension Plan Guide (CCH), Pre-1986 IRS Tax Releases, &para; 17,337.<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.&nbsp;&nbsp; <em>Estate of Kleemeier v. Commissioner</em>, 58 TC 241 (1972).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Generally, yes.<br /> <br /> The amount payable on death before maturity is not life insurance and, therefore, the estate tax rules for annuities apply.<br /> <br /> If a death benefit is payable to an annuitant&rsquo;s estate, its value is includable in the gross estate under IRC Section&nbsp;2033, and it is considered to be a property interest owned by the annuitant at the time of death.<br /> <br /> If a death benefit is payable to a named beneficiary and an annuitant purchased the contract after March&nbsp;3, 1931, the value of the death benefit generally is includable in the gross estate under IRC Section&nbsp;2039, whether or not the right was reserved to change the beneficiary. If the individual purchased the annuity as a gift for another person, and retained no interest in the annuity payments, incidents of ownership, or refunds, the value of the annuity ordinarily will not be includable in the individual&rsquo;s gross estate ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="628">628</a>).<br /> <br /> The same rules apply to the proceeds of a retirement income endowment if the insured dies after the terminal reserve value equals or exceeds the face value.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> For example, an employer purchases a contract from an insurance company to provide an employee, upon retirement at age 65, with an annuity of $100 per month for life, and continues to pay a similar annuity to his beneficiary upon the employee&rsquo;s death after retirement. The contract provides that if the employee dies before reaching retirement age, a lump sum payment of $20,000 will be paid to his beneficiary instead of the annuity. Assume that the reserve value of the contract at the retirement age is $20,000. If the employee dies after reaching retirement age, the death benefit to the beneficiary would be an annuity, which would be includable in the employee&rsquo;s gross estate under Section 2039 (a) and (b). If, on the other hand, the employee dies before reaching his retirement age, the death benefit to the beneficiary would be insurance under a policy on the life of the decedent since the reserve value would be less than the death benefit.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 20.2039-1(d).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 20.2039-1(d) (Ex.).<br /> <br /> </div></div><br />

<div class="Section1">If a donor irrevocably names one person to receive the income for life and irrevocably names another to receive the refund, the value of the refund at the donee-annuitant&rsquo;s death should not be includable in the donee-annuitant&rsquo;s gross estate. IRC Section&nbsp;2039 is not applicable because the donee-annuitant is not the purchaser of the contract ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="620">620</a>).<div class="Section1"><br /> <br /> However, if the refund is payable to the donee or the donee&rsquo;s estate (or the donee can otherwise direct where the refund goes), it will generally be included in the donee&rsquo;s estate for estate tax purposes.<br /> <br /> </div></div><br />

<div class="Section1">The value is the amount the same insurance company would charge the survivor for a single life annuity as of the date of the first annuitant's death.<a href="#_ftn1" name="_ftnref1">¹</a> Where it can be proven that the survivor's life expectancy is below average, it may be possible to obtain a valuation based on the survivor's actual life expectancy at the date of the decedent's death.<a href="#_ftn2" name="_ftnref2">²</a> For example, lower valuation has been obtained on proof that the surviving annuitant's life expectancy was short because of an incurable disease.<a href="#_ftn3" name="_ftnref3">³</a></div><br /> <div class="Section1"><br /> <br /> Even if an executor elects to value estate assets as of six months after death (alternate valuation), a survivor's annuity is valued at the date of death. The date of death value is used, despite the election of an alternate valuation, where any change in value after death is due only to lapse of time.<br /> <br /> If a surviving annuitant dies during the six months following the first annuitant's death, a lower valuation may be obtained by electing alternate valuation. Thus, in one case, where the survivor died before the optional valuation date, the value at the optional valuation date was determined by subtracting the cost of an annuity as of the survivor's date of death from the cost of an annuity as of the first annuitant's date of death.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Treas. Reg. § 20.2031-8(a)(3) (Ex.1); <em>Estate of Mearkle v. Commissioner</em>, 129 F.2d 386 (3d Cir. 1942); <em>Estate of Welliver v. Commissioner</em>, 8 TC 165 (1947);<em> Estate of Pruyn v. Commissioner</em>, 12 TC 754 (1949), <em>rev'd,</em> 184 F.2d 971 (2d Cir. 1950); <em>Christiernin v. Manning</em>, 138 F. Supp. 923 (D.N.J. 1956).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     <em>Estate of Jennings v. Commissioner</em>, 10 TC 323 (1948).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     <em>Estate of Halliday by Denbigh v. Commissioner</em>, 7 TC 387 (1946), <em>acq</em>., 1953-1 CB 4; <em>Estate of Hoelzel v. Commissioner</em>, 28 TC 384 (1957), <em>acq</em>., 1957-2 CB 3.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     <em>Estate of Hance v. Commissioner</em>, 18 TC 499 (1952).<br /> <br /> </div>

<div class="Section1">Yes, although such combination contracts are uncommon in today&rsquo;s marketplace.<div class="Section1"><br /> <br /> Even though an insured-annuitant holds no incidents of ownership in a life insurance policy at death, the proceeds of the policy nevertheless are includable in his or her gross estate under IRC Section&nbsp;2039 as a payment under an annuity contract purchased by the insured- annuitant.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> In a case decided before IRC Section&nbsp;2039 was enacted, the U.S. Supreme Court held that the proceeds were not includable in the insured-annuitant&rsquo;s gross estate under IRC Section&nbsp;2036 as property transferred by the insured-annuitant in which he retained a right to income for life.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> If an insured-annuitant transfers a life insurance policy within three years before his or her death, the proceeds may be includable in the insured-annuitant&rsquo;s gross estate under IRC Section&nbsp;2035 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="96">96</a>).<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> If an insured-annuitant owns a life insurance policy at death, the proceeds are includable in his or her gross estate either as property owned at the time of death<a href="#_ftn4" name="_ftnref4">⁴</a> or as a payment under an annuity contract purchased by the insured-annuitant.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Montgomery v. Commissioner</em>, 56 TC 489 (1971), <em>aff&rsquo;d,</em> 458 F.2d 616 (5th Cir. 1972); <em>Sussman v. U.S.</em>, 76-1 USTC &para; 13,126 (E.D.N.Y. 1975).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Fidelity-Philadelphia Trust Co. v. Smith</em>, 356 U.S. 274 (1958).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>U.S. v. Tonkin</em>, 150 F.2d 531 (3d Cir. 1945).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2033; <em>Estate of Coaxum v. Commissioner</em>, TC Memo 2011-135.<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2039.<br /> <br /> </div></div><br />

<div class="Section1">Life insurance or annuity proceeds payable to a surviving spouse qualify for the marital deduction if certain conditions are met ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="191">191</a>). If proceeds used the marital deduction in the first spouse&rsquo;s estate and the contract provides a survivor benefit to the surviving spouse&rsquo;s estate or to a person surviving the surviving spouse, then the proceeds usually are includable in the surviving spouse&rsquo;s estate.<div class="Section1"><br /> <br /> If the surviving spouse receives a straight life annuity, there is no property interest remaining at his or her death to be included in his or her gross estate.<br /> <br /> </div></div><br />

<div class="Section1">The value of a survivor&rsquo;s annuity is includable in the deceased annuitant&rsquo;s gross estate in proportion to his or her contribution to the purchase price of the contract.<a href="#_ftn1" name="_ftnref1">¹</a> (This rule applies to contracts purchased after March&nbsp;3, 1931.)<div class="Section1"><br /> <br /> Thus, if a deceased annuitant purchased the contract, the full value of the survivor&rsquo;s annuity is includable in his or her gross estate. If the survivor purchased the contract, no part of the value is includable in the deceased annuitant&rsquo;s estate. If both contributed to the purchase price, only a proportionate part of the value is includable in the deceased&rsquo;s estate.<br /> <br /> For example, suppose that the decedent and his wife each contributed $15,000 to the purchase price of a joint and survivor annuity payable for their joint lives and the life of the survivor. If the value of the survivor&rsquo;s annuity is $20,000 at the decedent&rsquo;s death, the amount to be included in his gross estate is one-half of $20,000 ($10,000) since he contributed one-half of the cost of the contract.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> In accord with this rule, if a joint and survivor annuity is purchased with community funds, only one-half of the value of the survivor&rsquo;s annuity is includable in the gross estate of the spouse who dies first.<a href="#_ftn3" name="_ftnref3">³</a> (For estate tax value of survivor&rsquo;s annuity, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="625">625</a>.)<br /> <br /> Where a joint and survivor annuity between spouses is treated as qualifying terminable interest property for gift tax purposes ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="619">619</a>) and the donee spouse dies before the donor spouse, nothing is included in the donee spouse&rsquo;s estate by reason of the qualifying interest.<a href="#_ftn4" name="_ftnref4">⁴</a> Where the survivor is the deceased annuitant&rsquo;s spouse, the value of the survivor&rsquo;s annuity will qualify for the marital deduction if the contract satisfies applicable conditions ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="191">191</a>).<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> An immediate joint and survivor annuity with no refund feature or a deferred annuity annuitized on that basis between spouses usually will escape estate tax in each spouse&rsquo;s estates because of the marital deduction and because the annuity ends at the survivor&rsquo;s death.<br /> <br /> <hr><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 2039(a), 2039(b).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 20.2039-1(c)(Ex. 1).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Mearkle v. Commissioner</em>, 129 F.2d 386 (3d Cir. 1942); <em>Commissioner v. Estate of Wilder</em>, 118 F.2d 281 (5th Cir. 1941).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 2523(f)(6).<br /> <br /> </div></div><br />