[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: 26CFR25.2702-4]

[Page 659-660]
 
                       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.  25.2702-4  Certain property treated as held in trust.

    (a) In general. For purposes of section 2702, a transfer of an 
interest in property with respect to which there are one or more term 
interests is treated as a transfer in trust. A term interest is one of a 
series of successive (as contrasted with concurrent) interests. Thus, a 
life interest in property or an interest in property for a term of years 
is a term interest. However, a term interest does not include a fee 
interest in property merely because it is held as a tenant in common, a 
tenant by the entireties, or a joint tenant with right of survivorship.
    (b) Leases. A leasehold interest in property is not a term interest 
to the extent the lease is for full and adequate consideration (without 
regard to section 2702). A lease will be considered for full and 
adequate consideration if, under all the facts and circumstances as of 
the time the lease is entered into or extended, a good faith effort is 
made to determine the fair rental value of the property and the terms of 
the lease conform to the value so determined.
    (c) Joint purchases. Solely for purposes of section 2702, if an 
individual acquires a term interest in property and, in the same 
transaction or series of transactions, one or more members of the 
individual's family acquire an interest in the same property, the 
individual acquiring the term interest is treated as acquiring the 
entire property so acquired, and transferring to each of those family 
members the interests acquired by that family member in exchange for any 
consideration paid by that family member. For purposes of this paragraph 
(c), the amount of the individual's gift will not exceed the amount of 
consideration furnished by that individual for all interests in the 
property.
    (d) Examples. The following examples illustrate rules of this 
section:

    Example 1. A purchases a 20-year term interest in an apartment 
building and A's child purchases the remainder interest in the property. 
A and A's child each provide the portion of the purchase price equal to 
the value of their respective interests in the property determined under 
section 7520. Solely for purposes of section 2702, A is treated as 
acquiring the entire property and transferring the remainder interest to 
A's child in exchange for the portion of the purchase price provided by 
A's child. In determining the amount of A's gift, A's retained interest 
is valued at zero because it is not a qualified interest.
    Example 2. K holds rental real estate valued at $100,000. K sells a 
remainder interest in the property to K's child, retaining the right to 
receive the income from the property for 20 years. Assume the purchase 
price paid by K's child for the remainder interest is equal to the value 
of the interest determined under section 7520. K's retained interest is 
not a qualified interest and is therefore valued at zero. K has made a 
gift in the amount of $100,000 less the consideration received from K's 
child.
    Example 3. G and G's child each acquire a 50 percent undivided 
interest as tenants in common in an office building. The interests of G 
and G's child are not term interests to which section 2702 applies.
    Example 4. B purchases a life estate in property from R, B's 
grandparent, for $100 and B's child purchases the remainder interest for 
$50. Assume that the value of the property is $300, the value of the 
life estate determined under section 7520 is $250 and the value of the 
remainder interest is $50. B is treated as acquiring the entire property 
and transferring the remainder interest to B's child. However, the 
amount of B's gift is $100, the amount of consideration ($100) furnished 
by B for B's interest.
    Example 5. H and W enter into a written agreement relative to their 
marital and property rights that requires W to transfer property to an 
irrevocable trust, the terms of which provide that the income of the 
trust will be paid to H for 10 years. On the expiration of the 10-year 
term, the trust is to terminate and the trust corpus is to be paid to W. 
H and W divorce within two years after the agreement is entered into. 
Pursuant to section 2516, the transfer to H would otherwise be deemed to 
be for full and adequate consideration. Section 2702 does not apply to 
the acquisition of the term interest by H because no member of H's 
family acquired an

[[Page 660]]

interest in the property in the same transaction or series of 
transactions. The result would not be the same if, on the termination of 
H's interest in the trust, the trust corpus were distributable to the 
children of H and W rather than W.

[T.D. 8395, 57 FR 4269, Feb. 4, 1992]