31 C.F.R. 1031.320(b)(2)(ii)
Exemption: Transfer Resulting from Death
Property transfers that happen because someone died, including inheritance, survivorship, and trust distributions triggered by death, are exempt from RRE reporting.
Rule text summary
The rule exempts transfers of residential real property that result from the death of an individual. This includes transfers through wills, intestate succession, trust distributions triggered by the grantor's death, joint tenancy survivorship, and beneficiary designations that take effect upon death.
Paraphrased for clarity. See the Federal Register Final Rule for authoritative text.
Analysis
The logic behind this exemption is straightforward: when property transfers because someone died, the transfer is driven by a life event, not by a purchase decision that could be used for money laundering. The deceased person's estate plan or state law determines where the property goes, not a buyer choosing to deploy cash through a shell company.
The exemption covers multiple death-triggered transfer mechanisms: property passing through a will (testate succession), property passing under state intestacy laws when there is no will, trust distributions that occur because the grantor or a specified person died, property that automatically passes to a surviving joint tenant, and transfers through beneficiary deeds or transfer-on-death designations.
The key requirement is causation. The transfer must result from the death, not merely involve an estate. If an estate sells property to a third-party buyer for cash, that sale may not qualify for this exemption because the sale itself is a new purchase transaction, not a death-triggered transfer.
Practical guidance
- Collect the death certificate, probate documents, trust instrument, or survivorship evidence that establishes the death-to-transfer chain.
- Distinguish between death-triggered transfers (exempt) and estate sales to third parties (potentially not exempt). The exemption covers property going to heirs and beneficiaries, not the estate selling property to an unrelated buyer.
- Record the specific exemption citation, the death-related documents you relied on, and your reasoning in the determination file.
- If the transfer involves both death-related elements and additional negotiated terms (like one heir buying out another's share), route for enhanced review before applying the exemption.
Common mistakes
- Assuming every transaction involving an estate or trust is automatically exempt. The exemption requires that the transfer result from the death, not just that an estate is a party to the transaction.
- Failing to collect and retain supporting documentation. A note saying 'buyer said it's an inheritance' is not sufficient. You need the probate records, death certificate, or trust instrument.
- Applying the exemption to estate liquidation sales to unrelated third-party cash buyers without analyzing whether the sale itself is a new reportable transaction.