## Facts

- In 1984, Elmore K. Melton, Jr., age 60, owned a Texas ranch.
- Melton entered into a split-interest transaction with his two adopted sons, John Wheeler and David Wheeler.
- Melton retained a life estate in the ranch and sold the remainder interest to the Wheelers.
- The Wheelers paid a price calculated using actuarial tables published by the U.S. Treasury, discounting the remainder value based on the life expectancy of a 60-year-old.
- No party disputed that the actuarial tables were properly selected and applied, or that the computation produced the correct actuarial value for the remainder interest.
- Melton later died of heart failure at age 67, about seven years after the transaction.
- The record contained no evidence that Melton’s death was expected, imminent, or reasonably foreseeable at the time of the 1984 sale.
- After reviewing the estate-tax return, the IRS concluded that the actuarial-price sale was not for “adequate and full consideration in money or money’s worth” and issued an estate-tax deficiency notice.
- The IRS took the position that the ranch’s full date-of-death value (reduced by the price the Wheelers paid) should be included in Melton’s gross estate under I.R.C. § 2036(a).
- The Wheelers challenged the deficiency in federal district court, which agreed with the government, and the Wheelers appealed.

## Issues

1. Whether, under I.R.C. § 2036(a), a decedent’s intrafamily sale of a remainder interest for its Treasury-table actuarial value, while retaining a life estate, qualifies as a bona fide sale for adequate and full consideration in money or money’s worth.
2. Whether, absent proof that the decedent’s death was expected or otherwise outside normal actuarial assumptions when the transfer occurred, the IRS may disregard Treasury actuarial tables and include the property’s date-of-death value (minus the sales price) in the gross estate.

## Decision

- The Fifth Circuit reversed the district court.
- The court held that Melton’s sale of the remainder interest for its undisputed Treasury-table actuarial value satisfied § 2036(a)’s bona fide sale for adequate and full consideration exception.
- Because the exception applied, § 2036(a) did not require inclusion of the ranch’s date-of-death value in Melton’s gross estate on the government’s theory.

## Legal Principles

- I.R.C. § 2036(a) generally includes in a decedent’s gross estate property the decedent transferred while retaining possession, enjoyment, or the right to income (such as a life estate), unless the transfer was a bona fide sale for adequate and full consideration in money or money’s worth.
- For the adequate-consideration inquiry in a retained-life-estate transaction, the comparison focuses on the value of the interest actually transferred (here, the remainder), not the fee simple value of the entire property as of the date of death.
- Treasury actuarial tables are ordinarily used to value life estates and remainders for transfer-tax purposes, and they are not set aside merely because the decedent lived fewer years than the tables predicted.
- Departure from actuarial-table valuation requires circumstances showing the tables are unreliable at the time of transfer, such as evidence that death was expected or that the transferor’s condition made standard life-expectancy assumptions inappropriate.
- An intrafamily transfer is not automatically disregarded; it may qualify as a bona fide sale when the record supports a real exchange for consideration equal to the properly determined value of the interest transferred.

## Conclusion

Wheeler held that when a 60-year-old ranch owner sold a remainder interest to his adopted sons for the undisputed actuarial value computed under Treasury tables and retained a life estate, § 2036(a) did not pull the ranch’s full date-of-death value into the gross estate because the transaction fell within the bona fide sale for adequate and full consideration exception, absent evidence that the seller’s death was expected when the sale occurred.


Wheeler v. United States, 116 F.3d 749 (1997)