## Facts

- Dwight B. Roy, Jr. and his brother created an irrevocable trust in 1959.
- The trust’s net income was payable for life to their father.
- The trust provided that if the father died before either son, the trust corpus would revert to the sons (in specified shares); if a son died before the father, that son’s share would be held for the benefit of his family.
- Roy was 41 and in good health when the trust was formed; he later developed chronic nephritis and died at age 47, survived by his father and brother.
- The IRS determined an estate tax deficiency based on including property in Roy’s gross estate under I.R.C. § 2037, asserting Roy retained a reversionary interest whose value immediately before death exceeded 5% of the transferred property’s value.
- The Commissioner valued Roy’s reversionary interest using standard actuarial mortality tables, producing a value of roughly 70% of the trust corpus.
- The estate argued that valuation should reflect Roy’s known, impaired health and shortened life expectancy, yielding a valuation near or below 5%.

## Issues

1. For I.R.C. § 2037’s 5% threshold, must a decedent’s retained reversionary interest be valued immediately before death using standard mortality tables, or may the valuation be adjusted to reflect the decedent’s actual medical condition and reduced life expectancy?

## Decision

- The Tax Court ruled for the Commissioner.
- The court held that, for § 2037, the reversionary interest is valued using standard mortality tables reflecting average life expectancy, not individualized evidence of the decedent’s health.
- Under the mortality-table valuation, Roy’s reversionary interest exceeded 5% of the value of the transferred property.
- Because the § 2037 threshold was satisfied, the property subject to the reversionary interest was includible in Roy’s gross estate, and the deficiency was sustained.

## Legal Principles

- Under I.R.C. § 2037, inclusion turns in part on whether the value of a retained “reversionary interest” immediately before death exceeds 5% of the value of the transferred property.
- For § 2037’s valuation test, actuarial mortality tables supply an objective measure of survival probabilities and value; a decedent’s actual health and individualized mortality risk are not used to adjust the valuation.
- The use of standardized tables supports uniform administration of estate tax valuation for contingent future interests.

## Conclusion

The Tax Court sustained estate tax inclusion under § 2037, holding that the decedent’s retained reversionary interest must be valued by standard mortality tables (average life expectancy) when applying the 5% threshold, even if the decedent had a known, substantially shortened life expectancy.


Estate of Roy v. Commissioner, 54 T.C. 1317 (1970)