Source: http://www.tennlaw.com/07/gift-splitting-when-spouse-is-trust-beneficiary/
Timestamp: 2019-04-25 04:22:58+00:00

Document:
Gift-Splitting When Spouse is Trust Beneficiary | Gentry, Tipton & McLemore, P.C.
Therefore, the issue is whether Husband, by virtue of gift-splitting, is deemed to have transferred property to trust while retaining certain benefits from the trust. If the answer is yes, the half of the trust property that Husband was deemed to have transferred would be includible in his estate under I.R.C. § 2036.
The plain language of I.R.C. § 2513, however, hints that this is not the case. Paragraph (a)(1) says that a gift by one spouse will only be considered as having been made one-half by each spouse “for the purposes of this chapter.” The chapter in question is Chapter 12 of the Internal Revenue Code. The estate tax is housed in Chapter 11. Thus, it is only for gift tax purposes, not estate tax purposes, that the non-donor spouse (Husband, in this case) is treated as making the transfer.
Revenue Ruling 74-556 elaborates on this point. In that ruling, husband transferred securities to a custodial account for his daughter, naming himself as custodian. As custodian, he had the power to control his daughter’s use and enjoyment of the securities until she reached age 21. In connection with the gift, husband filed a gift tax return, and wife consented to splitting the gift. Husband later became incapacitated, and wife took over as custodian. When wife died, the question was whether her status as a deemed transferor to the custodial account, combined with her authority over the account as custodian, caused the account to be includible in her estate under I.R.C. § 2038.
The IRS said no. A spouse who consents to gift-splitting is “merely considered” a transferor. I.R.C. § 2038, on the other hand, requires an actual transfer on the part of the decedent. Thus, the IRS concluded that because decedent wife did not transfer any part of the securities to her daughter’s custodial account, no part of their value is includible in her gross estate under I.R.C. § 2038, even though wife was the custodian of the account at the time of her death.
The same logic should apply with respect to I.R.C. § 2036. It also explicitly requires a transfer by the decedent of his property prior to death. A deemed transfer for purposes of Chapter 12 is not sufficient. Therefore, in the scenario described above, gift-splitting will not cause any part of the trust estate to be includible in Husband’s estate.

References: § 2036
 § 2513
 § 2038
 § 2038
 § 2038
 § 2036