[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR25.2523(c)-1]

[Page 609-610]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 25_GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954--Table of Contents
 
Sec.  25.2523(c)-1  Interest in unidentified assets.

    (a) Section 2523(c) provides that if an interest passing to a donee 
spouse may be satisfied out of a group of assets (or their proceeds) 
which include a particular asset that would be a nondeductible interest 
if it passed from the donor to his spouse, the value of the interest 
passing to the spouse is reduced, for the purpose of the marital 
deduction, by the value of the particular asset.
    (b) In order for this section to apply, two circumstances must 
coexist, as follows:
    (1) The property interest transferred to the donee spouse must be 
payable out of a group of assets. An example of a property interest 
payable out of a group of assets is a right to a share of the corpus of 
a trust upon its termination.
    (2) The group of assets out of which the property interest is 
payable must include one or more particular assets which, if transferred 
by the donor to the donee spouse, would not qualify for the marital 
deduction. Therefore, section 2523 (c) is not applicable merely because 
a group of assets includes a terminable interest, but would only be 
applicable if the terminable interest were nondeductible under the 
provisions of Sec.  25.2523(b)-1.
    (c) If both of the circumstances set forth in paragraph (b) of this 
section exist, only a portion of the property interest passing to the 
spouse is a deductible interest. The portion qualifying as a deductible 
interest is an amount equal to the excess, if any, of the value of the 
property interest passing to the spouse over the aggregate value of the 
asset (or assets) that if transferred to the spouse would not qualify 
for the marital deduction. See paragraph (c) of Sec.  25.2523(a)-l to 
determine the percentage of the deductible interest allowable as a 
marital deduction. The application of this section may be illustrated by 
the following example:


[[Page 610]]


    Example. H was absolute owner of a rental property and on July 1, 
1950, transferred it to A by gift, reserving the income for a period of 
20 years. On July 1, 1955, he created a trust to last for a period of 10 
years. H was to receive the income from the trust and at the termination 
of the trust the trustee is to turn over to H's wife, W, property having 
a value of $100,000. The trustee has absolute discretion in deciding 
which properties in the corpus he shall turn over to W in satisfaction 
of the gift to her. The trustee received two items of property from H. 
Item (1) consisted of shares of corporate stock. Item (2) consisted of 
the right to receive the income from the rental property during the 
unexpired portion of the 20-year term. Assume that at the termination of 
the trust on July 1, 1965, the value of the right to the rental income 
for the then unexpired term of 5 years (item (2)) will be $30,000. Since 
item (2) is a nondeductible interest and the trustee can turn it over to 
W in partial satisfaction of her gift, only $70,000 of the $100,000 
receivable by her on July 1, 1965, will be considered as property with 
respect to which a marital deduction is allowable. The present value on 
July 1, 1955, of the right to receive $70,000 at the end of 10 years is 
$49,624.33 as determined under Sec.  25.2512-5A(c). The value of the 
property qualifying for the marital deduction, therefore, is $49,624.33 
and a marital deduction is allowed for one-half of that amount, or 
$24,812.17.

[T.D. 6334, 23 FR 8904, Nov. 15, 1958; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 8522, 59 FR 9659, Mar. 1, 1994; T.D. 8540, 59 FR 30103, 
June 10, 1994]