## Facts

- Maria McKean Allen created an irrevocable trust reserving for herself a life income interest in three-fifths of the trust income; her two children received the other two-fifths of income and were remaindermen of the corpus.
- At approximately age 78, Allen was advised that retaining the life income interest could cause inclusion of her attributable share of the trust corpus in her gross estate for federal estate tax purposes under the 1939 Internal Revenue Code.
- With counsel’s assistance, Allen arranged to sell her retained life income interest to her son, Wharton Allen.
- The actuarial value of the life income interest was approximately $135,000; Allen’s attributable share of the corpus (three-fifths) was valued at approximately $900,000.
- Wharton Allen agreed to pay $140,000 after consulting business advisers, expecting to profit if his mother lived long enough; upon payment, he began receiving the income previously payable to her.
- At the time of the sale, Allen was in relatively good health and expected to live a normal lifespan, but she soon was found to have an incurable disease and died earlier than expected, causing Wharton to incur a substantial loss on the purchase.
- The Commissioner determined that three-fifths of the trust corpus, reduced by the $140,000 purchase price, was includible in Allen’s gross estate on the grounds that the transfer was in contemplation of death and not for adequate and full consideration.
- The estate’s executors paid the assessed estate tax and sued for a refund; the district court entered judgment for the estate, and the United States appealed.

## Issues

1. Whether the decedent’s sale of her reserved trust life income interest to her son was a transfer “in contemplation of death” requiring inclusion of the related portion of the trust corpus in the gross estate under § 811 of the 1939 Internal Revenue Code.
2. Whether the sale qualified as a bona fide sale for “adequate and full consideration in money or money’s worth,” excluding the transferred interest from gross estate inclusion.

## Decision

- The court of appeals affirmed the judgment for the estate granting a refund.
- The court held the sale was not made in contemplation of death on the facts found by the district court.
- The court held the $140,000 price was adequate and full consideration because it met or exceeded the actuarial value of the life income interest.
- As a result, three-fifths of the trust corpus (beyond the sale proceeds) was not includible in the decedent’s gross estate under the government’s theories.

## Legal Principles

- A transfer is “in contemplation of death” when death-related motives are the impelling cause; a tax-reduction motive does not, by itself, compel a finding that a transfer was made in contemplation of death.
- In assessing contemplation of death, courts consider objective circumstances (including health and expected lifespan at the time of transfer) and the factual character of the transaction; appellate review of these findings is deferential absent clear error.
- A sale of a life income interest can qualify as a bona fide sale for “adequate and full consideration” when the consideration approximates the actuarial value of the life interest, even if far below the value of the underlying corpus.
- The arm’s-length character of the sale and the purchaser’s assumption of real economic risk support treatment as a bona fide sale rather than a testamentary substitute.

## Conclusion

The court affirmed a tax refund to the estate, concluding that the decedent’s sale of her reserved trust life income interest to her son was a bona fide, arm’s-length transaction for adequate actuarial consideration and was not made in contemplation of death, so the related portion of the trust corpus was not includible in the gross estate.


United States v. Allen, 293 F.2d 916 (10th Cir. 1961)