## Facts

- Richard H. Black and Phyllis M. Black, spouses residing in Arizona, held various securities as joint tenants.
- On June 10, 1977, they created the Black Revocable Trust and served as co-trustees, transferring into it property identified as each spouse’s separate property.
- During their joint lives, both spouses retained unrestricted rights to trust principal and income and a joint power to amend or revoke the trust.
- The trust required that, at the first spouse’s death, assets be divided into a Survivor’s Trust and a Decedent’s Trust.
- The Survivor’s Trust was funded with the survivor’s separate property, the survivor’s community-property interest, and additional assets to obtain the maximum marital deduction; the remainder funded the Decedent’s Trust.
- The Survivor’s Trust gave the survivor an unrestricted right to principal and income, a general power of appointment, and power to amend or revoke.
- The Decedent’s Trust restricted the survivor’s access: the survivor and the couple’s daughter were co-beneficiaries, distributions were discretionary, and principal invasions were limited by ascertainable standards (health, education, and reasonable support).
- Richard died in August 1977 while the trust still held the transferred securities.
- The estate reported one-half of the value of the former joint-tenancy securities in the gross estate.
- The IRS determined an estate tax deficiency, asserting that I.R.C. § 2040 required inclusion of the entire value of the former joint-tenancy property (subject to contribution tracing), and the Tax Court sustained the IRS.

## Issues

1. Whether transferring joint-tenancy securities into a revocable trust that altered survivorship and beneficial rights severed the joint tenancy for purposes of I.R.C. § 2040.
2. Whether, despite the trust, I.R.C. § 2040 required inclusion in the decedent’s gross estate of the entire value of the formerly joint-tenancy property (less the survivor’s contribution).

## Decision

- The court reversed the Tax Court in part.
- It held that creating the revocable trust severed the joint tenancy.
- Because the joint tenancy was severed, the surviving spouse’s share of the trust assets was not includible in the decedent’s gross estate under I.R.C. § 2040.
- The case was remanded for estate-tax computation consistent with inclusion of only the decedent’s share under the post-transfer ownership arrangement.

## Legal Principles

- I.R.C. § 2040’s full-inclusion rule applies to property held in joint tenancy with a right of survivorship at the decedent’s death, except to the extent the survivor proves consideration furnished.
- A transfer of joint-tenancy property into a revocable trust can sever the joint tenancy when the trust terms materially eliminate or restrict the survivor’s automatic, unencumbered survivorship enjoyment of the entire property.
- Trust provisions that mandate division at the first death and create a restricted-interest trust for part of the assets are inconsistent with continued joint tenancy and can place the survivor’s share outside § 2040.

## Conclusion

The Ninth Circuit held that the Blacks’ revocable trust changed ownership rights in a manner that severed joint tenancy, so § 2040 did not permit inclusion of the surviving spouse’s share of the formerly joint-tenancy securities in the decedent’s gross estate.


Black v. Comm’r, 765 F.2d 862 (9th Cir. 1985)