Federal Estate Taxes—Deviation from Mortality Tables under Section 2037

A recent decision by the United States Court of Appeals for the Seventh Circuit1 has caused some discussion by legal writers and undoubtedly some apprehension by the Commissioner of Internal Revenue. The case is Hall v. United States and the problem presented was whether the United States Life Table 385 is the exclusive method of determining the value of a reversionary interest under section 2037 of the Internal Revenue Code. The Seventh Circuit, in allowing the use of evidence to show the decedent\u27s actual life expectancy, found that the words by usual methods of valuation in the code made it plain that the statute does not contemplate that valuation shall be determined in all cases solely by use of tables of mortality and actuarial principles. In this article an attempt will be made to evaluate the holding in the Hall case and the policy reasons for allowing valuation of reversionary interests by actual life expectancy. This will be done with an eye toward giving guidelines for future use of evidence showing decedent\u27s poor health prior to death under section 2037. These purposes will be accomplished through an examination of the purpose of the five percent rule in section 2037, an analysis of the arguments both for and against the exclusive use of mortality, and actuarial tables as a valuation device, and an evaluation of pertinent cases in light of the purpose of the rule and the arguments relevant to its application. Finally an attempt will be made to draw these considerations together into some tests which may be used in evaluating the merits of asserting a decedent\u27s poor health prior to death under section 2037