185 / How is a “reversionary interest trust” taxed under the estate tax law?

If the trust instrument provides that the trust will end on the grantor’s death, the entire value of the property is includable in the grantor’s gross estate. Otherwise, the grantor’s reversionary interest is includable in the estate. The longer the trust term, the less will be the value of the reversion in the grantor’s estate. This value is determined by use of the Estate and Gift Tax Tables found in Appendix D. If the gift of the income interest was a taxable gift, the amount of the gift, if not included in the gross estate, will be added to the taxable estate for purposes of computing the tentative estate tax. Nothing will be includable in the beneficiary’s estate if the trust instrument provides for termination on the beneficiary’s death. Otherwise, the value of the right to income will be includable. This value decreases as the trust term draws to a close.¹

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1. Treas. Reg. § 20.2031-7(d)(2)(ii).