Revocable

Transfer
Section 85 (C) NIRC of 1997

Codal Reference
(C) Revocable Transfer. (1) To the extent of any interest therein, of which the
decedent has at any time made a transfer (except in
case of a bona fide sale for an adequate and full
consideration in money or moneys worth) by trust or
otherwise, where the enjoyment thereof was subject
at the date of his death to any change through the
exercise of a power (in what ever capacity exercisable)
by the decedent alone or by the decedent in
conjunction with any other person (without regard to
when or from what source the decedent acquired such
power), to alter, amend, revoke, or terminate, or
where any such power is relinquished in contemplation
of the decedent s death.

Codal Reference
(2) For the purpose of this Subsection, the power to alter,
amend or revoke shall be considered to exist on the date
of the decedents death even though the exercise of the
power is subject to a precedent giving of notice or even
though the alteration, amendment or revocation takes
effect only on the expiration of a stated period after the
exercise of the power, whether or not on or before the
date of the decedents death notice has been given or the
power has been exercised.
In such cases, proper adjustment shall be made
representing the interests which would have been
excluded from the power if the decedent had lived, and for
such purpose if the notice has not been given or the power
has not been exercised on or before the date of his death,
such notice shall be considered to have been given, or the
power exercised, on the date of his death.

Simplified
Revocable Transfer is any transfer (by trust or
otherwise) made by a decedent during his lifetime
where the decedent (or in conjunction with any
other person without regard when or where such
power came from) has reserved the right to alter,
amend, terminate or revoke such transfer.
Even
if
such
power
is
relinquished
in
contemplation of the decedents death, unless it
is a bona fide sale for an adequate and full
consideration in money or moneys worth, IT IS
STILL CONSIDERED AS REVOCABLE TRANSFER.
It is not necessary that such power is exercised; it
is enough that the decedent has such power.

Why is revocable transfer considered as part

of the decedents estate and therefore,
subject to estate tax?
The fact that the transferor has the power to
revoke the transfer at any time, such person wield
a tremendous amount of power which gives him
an authority to revoke such transfer as if none
was actually made.
So that it cannot be a tool for tax circumvention.

A transfer is not
recoverable if:
If the decedents power can only be exercised
with the consent of all interested parties in the
transferred property.
When the decedent has been completely divested
of his power at the time of his death
Where the decedents power is subject to a
contingency beyond the decedents control which
did not occur before his death

Example
X transfers his property in trust with the income
payable to Y and Z for their joint lives, and in the
event of their death, the remainder to W, but X
retains the power to alter, amend, revoke or
terminate the income interest of Y and/or Z. The
value of the property is includible in the Gross
Estate of X upon his death.