[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.642(h)-3]

[Page 50]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.642(h)-3  Meaning of ``beneficiaries succeeding to the property 
of the estate or trust''.

    (a) The phrase beneficiaries succeeding to the property of the 
estate or trust means those beneficiaries upon termination of the estate 
or trust who bear the burden of any loss for which a carryover is 
allowed, or of any excess of deductions over gross income for which a 
deduction is allowed, under section 642(h).
    (b) With reference to an intestate estate, the phrase means the 
heirs and next of kin to whom the estate is distributed, or if the 
estate is insolvent, to whom it would have been distributed if it had 
not been insolvent. If a decedent's spouse is entitled to a specified 
dollar amount of property before any distribution to other heirs and 
next of kin, and if the estate is less than that amount, the spouse is 
the beneficiary succeeding to the property of the estate or trust to the 
extent of the deficiency in amount.
    (c) In the case of a testate estate, the phrase normally means the 
residuary beneficiaries (including a residuary trust), and not specific 
legatees or devisees, pecuniary legatees, or other nonresiduary 
beneficiaries. However, the phrase does not include the recipient of a 
specific sum of money even though it is payable out of the residue, 
except to the extent that it is not payable in full. On the other hand, 
the phrase includes a beneficiary (including a trust) who is not 
strictly a residuary beneficiary but whose devise or bequest is 
determined by the value of the decedent's estate as reduced by the loss 
or deductions in question. Thus the phrase includes:
    (1) A beneficiary of a fraction of a decedent's net estate after 
payment of debts, expenses, etc.;
    (2) A nonresiduary legatee or devisee, to the extent of any 
deficiency in his legacy or devise resulting from the insufficiency of 
the estate to satisfy it in full;
    (3) A surviving spouse receiving a fractional share of an estate in 
fee under a statutory right of election, to the extent that the loss or 
deductions are taken into account in determining the share. However, the 
phrase does not include a recipient of dower or curtesy, or any income 
beneficiary of the estate or trust from which the loss or excess 
deduction is carried over.
    (d) The principles discussed in paragraph (c) of this section are 
equally applicable to trust beneficiaries. A remainderman who receives 
all or a fractional share of the property of a trust as a result of the 
final termination of the trust is a beneficiary succeeding to the 
property of the trust. For example, if property is transferred to pay 
the income to A for life and then to pay $10,000 to B and distribute the 
balance of the trust corpus to C, C and not B is considered to be the 
succeeding beneficiary except to the extent that the trust corpus is 
insufficient to pay B $10,000.