## Facts

- Edna Beaham Mersereau died in 1961; her estate filed a federal estate tax return and elected the alternative valuation date under I.R.C. § 2032.
- In 1950, to settle a threatened will contest involving her sister’s estate, Mersereau executed an agreement and trust indenture.
- Mersereau transferred 316 shares of closely held family corporation stock to a trustee; her two nephews transferred an additional 158 shares, creating a 474-share trust corpus.
- Each transferor retained voting rights in the shares transferred.
- The trust required the trustee to pay Mersereau, for life, the net dividends on all 474 shares; upon her death, the trust would terminate and the shares would be distributed to the nephews.
- Because Mersereau retained the right to income for life, the 316 shares she transferred were otherwise includible in her gross estate under I.R.C. § 2036(a)(1), subject to any reduction for consideration under I.R.C. § 2043(a).
- The IRS treated the “consideration received” for Mersereau’s 1950 transfer as the actuarial value (as of 1950) of her life income interest in the nephews’ 158 shares and assessed taxes accordingly.
- The executor paid the assessed estate and gift taxes and sued for a refund; the district court entered judgment for the estate, and the United States appealed.

## Issues

1. Under I.R.C. § 2043(a), is the “consideration received” in an inter vivos transfer for less than full consideration valued as of the date of the transfer (actuarially), or may it be measured by the transferor’s later actual receipts (e.g., dividends) over life?
2. How does the valuation of “consideration received” under § 2043(a) interact with estate inclusion under § 2036 and valuation elections under § 2032?

## Decision

- The Eighth Circuit affirmed the refund judgment for the estate.
- The court held that, for § 2043(a), “consideration received” is valued as of the date of the transfer, not by reference to subsequent income actually received or the date of death.
- The court rejected using post-transfer dividends over time as the measure of consideration for § 2043(a) purposes.

## Legal Principles

- I.R.C. § 2043(a) reduces estate inclusion for transfers otherwise includible under provisions such as § 2036 only by the value of “adequate and full consideration in money or money’s worth” received.
- For § 2043(a), the value of the consideration received is determined at the time of the exchange (the transfer date), consistent with evaluating the transaction as part sale and part gift at that time.
- Subsequent economic results (including realized dividends) do not retroactively alter the measure of “consideration received” under § 2043(a).
- A § 2032 alternative valuation election affects the valuation date for included property, but it does not change the transfer-date valuation rule for § 2043(a) consideration.

## Conclusion

The Eighth Circuit affirmed a refund judgment while clarifying that, in applying I.R.C. § 2043(a) to a bargain-type transfer otherwise includible under § 2036, the “consideration received” is fixed and valued at the date of the transfer rather than by later income outcomes or death-date valuation.


United States v. Righter, 400 F.2d 344 (8th Cir. 1968)