Also known as: bona fide sale for adequate and full consideration · bona fide sale · adequate and full consideration
Written by attorneys · grounded in primary & secondary sources — see below
A transaction in which the transferor conveys property in exchange for payment or an enforceable obligation equal in economic value to the property conveyed. The exchange must reflect arm's-length terms rather than a disguised gift. Such a transfer is excluded from a decedent's nonprobate transfers when computing a surviving spouse's elective share under augmented-estate rules.
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Brian Bailey owned municipal bonds worth $1 million. Six months before his death he sold the entire block to a longtime client for $950,000 in cash. The price matched the wholesale level Brian regularly offered institutional buyers. Brian's surviving spouse later sought an elective share. Because Brian received essentially full monetary consideration, the bonds are excluded from his nonprobate transfers and are not added to the augmented estate.
Bei Bai conveyed her residence to her son and daughter-in-law in exchange for a promissory note equal to the appraised value. The buyers allowed Bei to remain in the home under a lease that required only nominal rent. After Bei's death the IRS asserted that the arrangement was not a bona fide sale. The court examined whether Bei received adequate and full consideration in money or money's worth and concluded that the retained possession and below-market lease terms showed the transaction lacked the required economic equivalence.
A transfer qualifies when the decedent receives payment or an enforceable obligation equal in value to the property conveyed. Cash paid at a commercially reasonable price satisfies the standard. An enforceable promissory note for fair market value also counts as money's worth even if not fully paid before death.
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A below-market price prevents exclusion only to the extent the consideration falls short of full value. The portion supported by actual payment is excluded. The shortfall is treated as a gratuitous transfer and included in the augmented estate.
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Yes. Legally enforceable promises to provide lifetime support or maintenance have ascertainable economic value. When combined with any cash paid, these obligations can satisfy the adequate-and-full-consideration standard and exclude the transfer from the augmented estate.
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No. The statute focuses on the value received by the decedent, not the relationship between the parties. A sale to a family member or romantic partner is excluded if the decedent received full monetary consideration or its equivalent.
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