Two Cases the Tax Court Recently Addressed
Estate of Fujishima: The decedent died owning three life insurance policies. Two of them were payable to his mother, and the other one was a smaller policy payable to his brother. The decedent also had a small value of stock in Conseco, Inc. and a “senior note” from Conseco worth $10,000.
The estate tax return reported the larger insurance policies as disputed and did not even report a value. The note was omitted altogether. There were large deductions for executor’s commissions and fees that were not documented.
The Commissioner disallowed the claimed deductions and acknowledged that the other insurance policy should not have been omitted. The Tax Court held that the estate did not meet its evidentiary burden in court, but it did note that the estate should be allowed a deduction for administration expenses that it “‘actually incurred.'”
Estate of Gill: The decedent, who was dying of lung cancer after his first wife died, remarried a few short months after her death. He substituted his second wife as the income beneficiary of a QTIP marital trust and credit shelter trust in his estate plan. He made his second wife the co-trustee of both trusts with a bank trust company and displaced his two children.
The children and the wife ended up in litigation that involved an accounting of the trusts and the validity of the decedent’s changed estate plan. The litigation over the validity of the changed estate plan was settled by mediation. The second wife and the trust company have gone back on the agreement though and it took seven years to reach a second settlement agreement which held that the decedent’s estate was to reimburse the parties for legal fees.
The Tax Court had to decide whether these fees were deductible and whether the marital deduction should be reduced by estate taxes reimbursed to the estate as part of the settlement of the litigation over the first wife’s trusts.
The Tax Court ruled that the children’s administration expenses were deductible, but that the second wife’s expenses were not after she went back on the first settlement. The Court also ruled that the state and federal taxes incurred by the decedent’s estate should not reduce the amount of the marital deduction in the estate.
See Tax Court Rules in Two Estate Tax Cases, Charitable Planning.com, Jan. 10, 2012Estate of Fujishima v. Commissioner, T.C. Memo 2012-6, Jan. 9, 2012; Estate of Gill v. Commissioner, T.C. Memo 2012-7, Jan. 9, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.