Estate Tax Charitable Deduction

Estate Tax Charitable Deduction

News story posted in U.S. District Court on 8 December 2000| comments
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Summary

In Harbison v. United States, 86 AFTD2d Par. 2000-5593; No. 1:98-cv-1675-BBM (Nov. 17, 2000), the United States District Court for the Northern District of Georgia, Atlanta Division, granted a summary judgment motion in favor of a decedent's granddaughters as to their right to receive an estate tax refund resulting from an estate tax charitable deduction. The Court found that a charitable deduction was allowable for the assets passing to charity upon the termination of a life estate trust created under the decedent's will given the death of the trust's income beneficiary before the first estate tax return was filed and despite the invasion of the trust for the income beneficiary's benefit prior to his death.

Harbison v. United States

PGDC SUMMARY:

In Harbison v. United States, 86 AFTD2d Par. 2000-5593; No. 1:98-cv-1675-BBM (Nov. 17, 2000), a decedent, Ms. Minor, was survived by one brother and two granddaughters. Ms. Minor's will left a life estate in trust for her brother who died a few weeks after Ms. Minor's death in 1993. Prior to the brother's death, Ms. Minor's estate made distributions to or for the brother's benefit of $33,354.93. Ms. Minor's will provided for bequests of $148,000 to various individuals when the brother's life estate ended, including bequests of $1,000 each to the two granddaughters, with the remaining balance of the estate to go to eight charitable organizations. Ms. Minor's estate paid estate taxes of $430,000 with its request to extend the time for filing the estate tax return. The estate tax return filed in 1995 did not include a charitable deduction so estate taxes shown as owed on the return were $332,907 and the estate received a refund of the difference between this amount and the $430,000 paid with interest.

The two granddaughters contested the will claiming that Ms. Minor lacked testamentary capacity. The estate's executors and the granddaughters agreed to reform the will and terminate the litigation on July 25, 1995. With the granddaughters' hopes of obtaining an estate tax charitable deduction for the estate, the reformation took out the references to the brother's life estate trust, replacing it with a specific bequest to the brother of $33,354.93. The charitable organizations named in the will each received $101,778 and the two granddaughters each received $1,000. The granddaughters also received the "right to file administrative claims for a refund from a charitable deduction" and they were to be allowed to keep any refund received from the IRS less any costs incurred by the estate in filing amended returns. The granddaughters filed an amended estate tax return on March 12, 1996, claiming a charitable deduction of $814,221 and an overpayment of estate taxes of $279,320.

The IRS denied the refund request on the basis that Ms. Minor's will created an invalid split interest trust under Code Section 2055(e)(2). In addition, the IRS said that the granddaughters were not the proper parties to file the refund suit under the settlement agreement, that the brother's death did not terminate the invalid split interest trust because it was invaded for his benefit prior to his death and that the will contest and related settlement was simply a nuisance lawsuit. The granddaughters filed the current lawsuit seeking the refund. After various procedural disputes and motions, the granddaughters obtained in 1999 an order from the local probate court approving the terms of the earlier settlement agreement and ordering that the estate assign its refund claim to the granddaughters. Both the granddaughters and the government sought summary judgment in the present suit before the United States District Court for the Northern District of Georgia, Atlanta Division.

The United States District Court granted the summary judgment motion of the granddaughters. In finding that the charitable remainder met the requirements for a charitable deduction, the Court observed that Code Section 2055(e)(3)(F) provided an exception to the split interest trust requirements where the income beneficiary dies before the due date for filing the estate tax return. The Court did not agree with the government's argument that the invasions of the trust for the brother took the trust outside the exception, noting that invasions were allowed based on the legislative history to this Code Section, other cases and IRS rulings. Nor did the Court agree with the government's argument that no reformable interest existed under Code Section 2055(e)(3)(C). Finally, the Court found that the granddaughters were the proper parties to receive the refund because the estate "clearly and validly" assigned its right to sue to the granddaughters under the Assignment of Claims Act.

POINTS TO PONDER:

What are the requirements that must be met for the exception of Code Section 2055(e)(3)(F) to apply?

FULL TEXT:

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

ORDER

This action arising under the Internal Revenue Code ("IRC") for the recovery of federal estate taxes and related interest is currently before the court on the plaintiffs' motion for summary judgment [Doc. No. 39-1], and the defendant's motion for summary judgment [Doc. No. 45-1] and motion for leave to supplement opposition to plaintiffs' motion for summary judgment and supplement defendant's motion for summary judgment [Doc. No. 47-1].

FACTUAL AND PROCEDURAL BACKGROUND

On October 4, 1993, Evelyn C. Minor ("Minor") died leaving an estate of approximately $1,965.00. At the time of her death, Minor was survived by one sibling, Dr. Henry W. Minor, Sr. ("Henry"), and two granddaughters, Cynthia Harbison and Diane Harbison Paz, 1 who are the plaintiffs in this action. The plaintiffs are actually the children of Minor's nephew, James Harbison ("Harbison"), whom Minor legally adopted shortly after Minor's sister (Harbison's mother) Una Belle died in 1943. 2 Item V of Minor's last will and testament provided a life estate in trust for her brother Henry with instructions that the executor 3 liberally use the trust assets to care for him. The will also provided for bequests totaling approximately $148,000 to go to certain individuals after the termination of Henry's life estate with the remaining balance directed to eight designated charitable organizations. 4 The will only provided the plaintiffs with a $1,000 bequest each.

Henry died on November 29, 1993, a few weeks after Minor's death. Between Minor's death and Henry's death, the executor of Minor's estate made distributions from Minor's estate to Henry or on his behalf for $33,354.93. In July of 1994, Minor's estate filed a request for extension to file the decedent's tax return and submitted $430,000 in payment of the then believed estate tax liability. On January 5, 1995, the executor of Minor's estate filed a tax return reflecting tax due in the amount of $332,907. In December of 1995, the total amount of the overpayment for $97,093 ($430,000 less $332,907) was refunded along with the accrued interest on the overpayment. The January 1995 tax return did not include a request for a charitable deduction.

In the meantime, the plaintiffs filed caveats to the will on March 9, 1994, 5 contending that Minor lacked testamentary capacity to execute her will. 6 On July 25, 1995, the executors and the plaintiffs later resolved their objections to the will by agreeing to reform the will and terminate the litigation (hereinafter "settlement agreement"). The reform removed any references to a life estate or trust in Henry's favor, but provided for a specific bequest to the brother in the amount of $33,354.93. This reformation was done at the plaintiffs' request in the hope that doing so would entitle the estate to claim a charitable deduction that was not permitted by the way that the will was originally drafted. 7 The eight charities received equal bequests directly from the estate's assets for $101,778 each after the life estate to Henry was terminated. Except for the $1,000 specific bequests provided for in the original will, the plaintiffs received nothing other than a right to file administrative claims for a refund from a charitable deduction. Subject to reimbursing Minor's estate for any costs incurred in filing the amended returns, the plaintiffs were permitted to keep any refund that the Internal Revenue Service ("IRS") allowed. Thus, the plaintiffs received the right to petition the IRS to fund part of what they hoped to receive from the will contest.

On March 12, 1996, on behalf of Minor's estate, the plaintiffs filed with the IRS an amended tax return to the January 5, 1995 tax return, claiming a charitable deduction in the amount of $814,221 and an overpayment of estate tax in the amount of $279,320. 8 However, the IRS Tax Examiner denied the claims for the refund because Minor's will created a split-interest trust in violation of IRC section 2055(e) (2). The Examiner stated that nothing in the settlement agreement permitted the plaintiffs to file a refund suit if the IRS disallowed the claims for a refund. The Examiner also noted that even though Henry died before the first tax return was filed, his death did not terminate the split-interest trust because he invaded the trust for $33,354.93. The Examiner further found that the will contest and later settlement agreement was a mere "nuisance lawsuit" only brought to recover a refund from a charitable deduction. Thus, because neither Henry's death nor the settlement agreement validly modified the split-interest trust, the plaintiffs' claim for the refund was wholly denied by the IRS.

The plaintiffs then filed the present refund action with this court naming the Estate of Minor as the plaintiff on June 15, 1998. By letter dated October 9, 1998, the executor's counsel advised the plaintiffs' counsel that the plaintiffs were not authorized to file this action on behalf of Minor's estate and demanded that the plaintiffs dismiss the action. The government moved to dismiss the action on November 23, 1998 [Doc. No. 14-1], claiming that the executor of Minor's estate was the proper party to the case and not the plaintiffs. The plaintiffs then filed with the Probate Court of Fulton County a motion to enforce the prior settlement agreement, in which they also sought to compel the executor to cooperate in the filing of this action. The executor filed a response denying that he ever agreed to authorize the plaintiffs to file a refund action on behalf of the estate. On August 26, 1999, the Probate Court approved the terms of the settlement agreement and ordered the parties to comply with the agreement. The Probate Court specifically ordered that Minor's estate assign its refund claim against the government to the plaintiffs.9

The plaintiffs submitted the Probate Court's order to this court on August 30, 1999 with a motion to substitute parties pursuant to Fed.R.Civ.P. 25(c) and a first amended complaint to restate the parties under Fed.R.Civ.P. 15 [Doc. No. 26-1]. This court denied both the government's motion to dismiss and the plaintiffs' motion to substitute parties on October 29, 1999 [Doc. No. 32-1]. The court noted that "neither plaintiff's first amended complaint, substituting the caveators in their individual capacity, nor the revised first amended complaint fulfill the requirements of the Assignment of Claims act. The proper party plaintiffs in this action are the caveators as representatives of the Estate." The court ordered the plaintiffs to file within ten days a second amended complaint naming the plaintiffs as "Cynthia Harbison and Diane Paz Harbison as representatives of the Estate of Evelyn Claire Minor." However, a clerical error caused the October 29th order to not be mailed to the plaintiffs and they failed to comply with the order to file a second amended complaint. The court ordered the case dismissed on December 22, 1999 because of the plaintiffs' noncompliance [Doc. No. 33-1]. After discovering the clerical error, the court reopened the case on March 10, 2000 [Doc. No. 36-1]. The plaintiffs then filed their second amended complaint in accordance with the October 29, 1999 order [Doc. No. 37-1] and soon thereafter filed their motion for summary judgment [Doc. No. 39-1].

SUMMARY JUDGMENT

Both the plaintiffs and the United States have moved for summary judgment. Because both motions depend on the resolution of the same issues and there are no factual disputes concerning the course of events, the motions will be addressed in one discussion. 10 Summary judgment is proper "if . . . there is no genuine issue as to any material fact" and "the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party may provide affirmative evidence of the non-moving party's inability to prove its case at trial, and summary judgment is mandated if a party cannot establish the existence of essential elements that it carries the burden of proving at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).

I. Split-Interest Trust under IRC section 2055

The central reason why the Tax Examiner rejected the plaintiffs' amended tax return on behalf of the estate was because the purported gifts to charity noted in Minor's will constituted a prohibited "split-interest trust." The Examiner also found that events occurring after Minor's death and later reformations of the will did not permit a charitable deduction within an exception to the split-interest trust rule.

Generally, IRC section 2055(a) "allows a deduction from the gross estate for 'the amount of all bequests, legacies, devises, or transfers' to specified beneficiaries, including certain charitable institutions." Rev. Rul. 89-31, 1989-1 C.B. 277 (quoting IRC section 2055(a)). However, because of abuses whereby the income beneficiary would receive a greater share of the estate than the charitable remainderman, Congress enacted IRC section 2055(e)(2) to prevent such practices. 11 Section 2055(e)(2)(A)-(B) provides that where a remainder interest in property passes or has passed from the decedent for a charitable purpose, and an interest in property passes or has passed from the decedent for a noncharitable use, no deduction is allowed under section 2055(a) unless the charitable remainder interest is in a trust that is a charitable remainder annuity trust or a charitable remainder unitrust or a pooled income fund.

Under the terms of section 2055, however, split-interest trusts may be abrogated if certain events occur or requirements met. For example, "[i]f in settlement of a bona fide will contest, a decedent's estate makes an immediate payment to a qualifying charity in satisfaction of the charity's claim to a split interest remainder that would not be deductible under section 2055(e)(2)(A) of the Code, the estate is entitled to a charitable deduction under section 2055." Rev. Rul. 89-31, 1989 C.B. 277 (discussing section 2055(e)(3)(B) & (C) (iii)). More importantly, section 2055(e)(3) provides express exceptions to the prohibition against split-interest trusts if certain factual events occur. Section 2055(e) (3)(F) states in part:

F) Special rule where income beneficiary dies. -- If (by reason of the death of any individual, or by termination or distribution of a trust in accordance with the terms of the trust instrument) by the due date for filing the estate tax return (including any extension thereof) a reformable interest is in a wholly charitable trust or passes directly to a person or for a use described in subsection (a), a deduction shall be allowed for such reformable interest as if it had met the requirements of paragraph (2) on the date of the decedent's death. . . .

Thus, if an income beneficiary noted in a will dies before the estate files an estate tax return, the split-interest trust will be reformed as if the split-interest trust had met the requirements of a valid charitable trust under section 2055(e).

In their motions for summary judgment, both the plaintiffs and the government argue at great length whether the settlement agreement sufficiently reformed Minor's original will pursuant to section 2055(e)(3)(B) to allow for a charitable deduction. In examining the undisputed facts of this case, however, it appears that the scenario noted in section 2055(e)(3)(F) has occurred. Minor died on October 4, 1993, leaving a will which designated a life estate to her brother Henry with the remainder going to charity after Henry's death. Henry died on November 29, 1993, a few weeks after Minor's death and before Minor's estate filed an estate tax return. Therefore, according to section 2055(e)(3)(F), Henry's death terminated his interest and only the charitable remainder (along with specific bequests to individuals) existed prior to the filing of an estate tax return. Minor's estate could then claim a charitable deduction independent from the settlement agreement. However, the Tax Examiner initially rejected this argument, stating that the split-interest trust was not reformed under section 2055(e)(3)(F) because Henry had invaded the trust for $33,354 (instead of disclaiming his interest) before he died. The government later argued in its motion for summary judgment that the section also would not apply because the charitable remainder interest did not constitute a valid "reformable interest" as contemplated in section 2055(e)(3)(C).

The court finds that the charitable remainder falls within IRC section 2055(e)(3)(F) notwithstanding the government's contentions. Henry's invasion of the trust before his death is irrelevant based upon the express language of the statute, its legislative history and case law interpreting the statute. The language of section 2055(e)(3)(F) which states: "by reason of the death of any individual, or by termination or distribution of a trust inaccordance with the terms of the trust instrument" demonstrates that payment to an income beneficiary is permissible before an estate tax return is filed and a charitable deduction is claimed. The trust clause notes that the split-interest may be reformed if a trust terminates or distribution is complete before the estate tax return is filed. Thus, a trust would not have to be disclaimed as long as the trust terminated or the trust completed its distribution by its own terms. It logically follows that a charitable deduction would also be permitted if an individual with a life estate died before an estate tax return was filed even though the individual received some funds through the life estate before the individual died.

The legislative history of section 2055(e)(3)(F) also indicates that payment to an income beneficiary is permitted before the beneficiary dies. Section 2055(e)(3)(F) originally amended the statute as part of the Deficit Reduction Act of 1984. The explanation of the proposed amendment stated: "[T]he charitable deduction is the actuarial value of the remainder interest before the reformation, adjusted for any payments made to those 'income' beneficiaries." Deficit Reduction Act of 1984, Pub. L. No. 98-369, section 1022, 1984 U.S.C.C.A.N. (98 Stat.) 1158 (emphasis added). 12 Hence, the drafters of section 2055(e)(3)(F) contemplated that an income beneficiary may have received some of the trust's funds before he/she died.

Finally, courts and the IRS have permitted refunds from charitable deductions despite a transfer of funds to the income beneficiary before the income beneficiary dies. The Court of Appeals for the Federal Circuit in Shriners Hospitals for Crippled Children v. United States, 862 F.2d 1561(Fed. Cir. 1988), allowed a refund from a charitable deduction even though the income beneficiary had already received payment from a testamentary trust. 13 The court found that it was "undisputed" that the plaintiff met the requirements of section 2055(e)(3)(F) and the court did not void the charitable deduction because the income beneficiary received some payment from the trust. Id. at 1562; see also Shriners Hospitals for Crippled Children v. United States, 14 Cl. Ct. 51, 53 (1987), rev'd on other grounds, Shriners, 862 F.2d at 1563. Although not controlling, several private letter rulings by the IRS have also advised taxpayers that the death of an income beneficiary before the filing of an estate tax return would reform the will under 2055(e)(3)(F) to receive a charitable deduction. The rulings make no reference to payments to the income beneficiary during his/her lifetime that would void a reformation under section 2055(e)(3)(F). See, e.g., Priv. Ltr. Rul. 9728026 (Apr. 11, 1997); Priv. Ltr. Rul. 9623019 (Mar. 6, 1996); Priv. Ltr. Rul. 8912027 (Mar. 24, 1989). Thus, Henry's invasion of the trust before his death does not effect the requirements of section 2055(e)(3)(F).

The United States also contends that section 2055(e)(3)(F) does not apply to this case because there was no "reformable interest" under section 2055(e)(3)(C). The government notes that "Ms. Minor's bequest to her brother was not expressed in terms of a specified dollar amounts [sic] or in a fixed percentage of the fair market value of property." Defendant's Memorandum in Support of Summary Judgment, p. 18 (discussing section 2055(e)(3)(C)(i), (ii)). Thus, the government argues: "Section 2055(e)(3) is of no aid to plaintiffs." Id. However, the United States has misinterpreted the meaning of section 2055(e)(3)(C). The section states in part:

(C) Reformable interest. -- For purposes of this paragraph -- (i) In general. -- The term "reformable interest" means any interest for which a deduction would be allowable under subsection (a) at the time of the decedent's death but for paragraph (2).

(ii) Benficiary's interest must be fixed. -- The term "reformable interest" does not include any interest unless, before the remainder vests in possession, all payments to persons other than an organization described in subsection (a) are expressed either in specified dollar amounts or a fixed percentage of the fair market value of the property. . .

The clear language of the statute and statements by the IRS indicate that a reformable interest passed to charity in this case. Although the original will did not specify an amount to be paid to Henry as an income beneficiary, at Henry's death and before the remainder to charity would have vested in possession under the will, Henry received $33,354 -- a specified dollar amount. Courts have held and the IRS has advised that section 2055(e)(3)(F) would be effective even though the original will did not specify an amount to be paid to the income beneficiary. See Shriners, 862 F.2d at 1562; Priv. Ltr. Rul. 9728026 (Apr. 11, 1997); Priv. Ltr. Rul. 9623019 (Mar. 6, 1996). 14 Thus, under section 2055(e)(3)(F), Henry's death retroactively reforms the original will from the date of Minor's death and the estate may petition for a charitable deduction.

II. Assignment of the Estate's Claims

Because the court has found that the estate is entitled to a charitable deduction, the court must now decide if the plaintiffs may receive the refund. Although the court has found that the settlement agreement of July 25, 1995 is irrelevant in determining if the estate is entitled to a charitable deduction, the agreement and subsequent court order of August 26, 1999 are pertinent in determining if the estate made a valid assignment to the plaintiffs. See supra notes 7 and 9. The government contends that the plaintiffs cannot bring suit against it for the recovery of the estate's overpaid taxes because the executor of Minor's estate only assigned the plaintiffs the right to sue in their individual capacities, an assignment prohibited by the Assignment of Claims Act, 31 U.S.C. section 3727. 15 In bringing this argument, the United States essentially repeats its contentions made in its motion to dismiss on November 23, 1998. The government maintains that the second amended complaint also fails to name the proper parties to the action for relief because the executor still never authorized the plaintiffs' to sue the United States on behalf of the estate.

The court finds that the executor of Minor's estate clearly and validly assigned the right to sue the United States for a refund under the Assignment of Claims Act. The Probate Court of Fulton County ordered the executor of Minor's estate to assign the estate's claim for a refund to the plaintiffs. This assignment was unambiguously noted in Exhibit A of the order and even specifically referred to the action before this court. See supra note 9. Five people signed the agreement ordered by the Probate Court, including the attorneys for the parties and the executor himself. Although the caption on the first amended complaint filed with this court was deemed technically defective, the court ordered the plaintiffs to file a second amended complaint and the plaintiffs eventually complied. The court is puzzled why the government would assert that the executor never agreed to the assignment when the executor expressly agreed in the Probate Court's order to "assign" to the Caveators, Cynthia Harbison Schindler and Diane Paz, all of its right, title and interest in and to the Estate's claim for a tax refund pursuant to Internal Revenue Code Section 2055, including any claims that have been or could be asserted by the Estate." See supra note 9. The plaintiffs have standing to bring this action.

Because the court has found that the estate is entitled to a refund from a charitable deduction pursuant to IRC section 2055 and that the plaintiffs are the proper parties to receive the refund, the plaintiffs' motion for summary judgment [Doc. No. 39-1] is hereby GRANTED, and the defendant's motion for summary judgment [Doc. No. 45-1] is hereby DENIED. The defendant's motion for leave to supplement opposition to plaintiffs' motion for summary judgment and supplement defendant's motion for summary judgment [Doc. No. 47-1] is GRANTED.

The United States is ordered to pay the plaintiffs the amount of the demanded refund for $279,320 inclusive with any applicable interest.

SO ORDERED, this 17th day of November, 2000.

/s/ Beverly B. Martin
United States District Judge

FOOTNOTES

1. AGREEMENT TO CLAIM CHARITABLE DEDUCTION:

The Caveators will cause to be filed on behalf of the Estate amended federal and state estate tax returns claiming the deduction provided by Section 2055 of the Internal Revenue Code within the time permitted by the Internal Revenue Code and seeking an appropriate refund consistent with the deduction. The Caveators will file such amended returns upon the earliest of:
(i) receipt of a refund from the Internal Revenue Service that the Estate claimed on its federal return filed on January 5,1995; (2) receipt of notice from the Internal Revenue Service that the federal estate tax return previously filed by the Estate will be audited or that the refund previously sought will be denied; or (3) nine (9) months from January 5, 1995. The Caveators will arrange for Arthur Andersen & Co., or such other certified public accounting firm as the Caveators select, to prepare the amended return for the purpose of seeking this refund and shall submit same to the Propounders for their review and approval, which approval shall not be unreasonably withheld. The Caveators will make all appropriate arrangements for the Estate to file the amended returns and will pay the accounting and legal fees, and other incidental expenses, associated with filing the amended returns. In addition, the Caveators will be responsible for the accounting fees, costs and other fees that may be incurred by the Estate in the event that the filing of the amended returns pursuant to this paragraph requires the Estate to file additional returns for calendar year 1996 or thereafter.

The Estate of Evelyn Claire Minor will assign its refund claim against the United States as set forth in the Tax Refund Litigation to the Caveators in the form attached as Exhibit "A," or otherwise such that the form of such assignment of the claim will be to the satisfaction of the Caveators, so that the Caveators may prosecute the Tax Refund Litigation in their own names and may be substituted as parties plaintiff, subject to the approval of the District Court.

The assignment clause noted in the form attached as Exhibit A of the Probate Court's order states:

The Estate of Evelyn Claire Minor, by and through its Executor, J. Clifton Barlow, Jr., hereby assigns to the Caveators, Cynthia Harbison Schindler and Diane Paz, all of its right, title and interest in and to the Estate's claim for a tax refund pursuant to Internal Revenue Code Section 2055, including any claims that have been or could be asserted by the Estate in that certain Civil Action which is now pending in the United States District Court for the Northern District of Georgia, styled. The Estate of Evelyn Claire Minor vs. United States of America, Civil Action File No. 1-98-CV-1675, and including any and all refunds or proceeds that may be awarded pursuant to such claim.

Congress perceived that there was often no correlation between the allowable estate tax deduction and the amount ultimately received by the charity because the trustee might favor the income beneficiary over the charitable remainderman by methods such as the exercise of a power of invasion or by manipulating the trust's investments to maximize the income interest. Congress concluded that to correct these abusive situations the annual payment to the income beneficiary must be stated in terms >of either of fixed dollar amounts or as a fixed percentage of the value of the trust property each year.

In addition, the bill provides that the death of all of the noncharitable "income" beneficiaries of a charitable remainder trust before the filing of the estate tax return (including any extensions) on which the charitable deduction for the transfer to the trust is claimed is to be treated as a reformation of the governing instrument of the trust. In such a case, the charitable deduction is the actuarial value of the remainder interest before the reformation, adjusted for any payments made to those "income" beneficiaries.

Id.

By will of Ernest C. Hudson, who died on February 15, 1979, half of his estate, amounting to $169,569.88, was placed in trust for the benefit of Mrs. Ben Downey during her lifetime, with the remainder to be paid to Shriners on her death. Mrs. Downey died on August 23, 1979, having received $4,675 in income from the testamentary trust. The remainder was then paid to Shriners. The estate filed its final federal tax return on December 15, 1979, claiming a charitable deduction for the entire trust amount.

Shriners, 862 F.2d at 1562 (emphasis added).

[The income beneficiary] died approximately five months after [the testator], prior to the due date for filing [testator's] estate tax return. Pursuant to the terms of [the trust], [the trust] terminated upon [the income beneficiary's] death, and 10 percent of the [trust] corpus passed directly to Charity. Accordingly, as a result of the death of [the income beneficiary], a reformable interest passed directly to charities described in section 2055(a), prior to the due date for the filing of the estate tax return. Thus, pursuant to section 2055(e)(3)(F), an estate tax charitable deduction is allowed for the value of the charitable remainder interest in [the trust] as if the trust had satisfied the requirements of section 2055(e)(2) on the date of [the testator's] death. Accordingly, [the trust] need not be reformed pursuant a judicial proceeding pursuant to section 2055(e)(3)(C)(iii) in order to qualify for the estate tax charitable deduction.

Id. (emphasis added).

(a) In this section, "assignment" means --

(1) a transfer or assignment of any part of a claim against the United States Government or of an interest in the claim; or

(2) the authorization to receive payment for any part of the claim.

(b) An assignment may be made only after a claim is allowed, the amount of the claim is decided, and a warrant for payment of the claim has been issued. The assignment shall specify the warrant, must be made freely, and must be attested to by 2 witnesses. The person making the assignment shall acknowledge it before an official who may acknowledge a deed, and the official shall certify the assignment. The certificate shall state that the official completely explained the assignment when it was acknowledged. An assignment under this subsection is valid for any purpose.

END OF FOOTNOTES


  1. To avoid confusion, the two granddaughters will be referred to collectively as "the plaintiffs."back

  2. Harbison pre-deceased Minor, thus the plaintiffs are Minor's only direct descendants.back

  3. Originally, there were two executors of Minor's estate, however, one executor has died. This order will refer only to one executor.back

  4. The charities included St. James United Methodist Church, Atlanta Humane Society, DeKalb Humane Society, National Kidney Foundation of Georgia, American Heart Association of Georgia, American Cancer Society of Georgia, Arthritis Foundation of Georgia, and First United Methodist Church of Atlanta.back

  5. At the time of Minor's death, Harbison's adoption was unknown to the Probate Court, and it was thought that Minor's brother Henry was the only heir at law of Minor. However, after it was discovered that Harbison had been legally adopted by Minor, making the plaintiffs the sole heirs at law, the caveat proceeded under the plaintiffs' names.back

  6. Specifically, the plaintiffs contended in their caveat to the will that Minor: (1) did not have a general awareness of the property that she was attempting to dispose of; (2) did not have a general awareness of who her family members were; and (3) did not have an awareness of what was in her will at the time of execution due to her age, deafness, and blindness because the will was not read to her and she did not know the provisions of her will at the time of execution.back

  7. The settlement agreement states in part the following:back

  8. Although the amended return stated a demand for refund of $290,796, the plaintiffs are suing for a refund of $279,320.back

  9. Paragraph five of the order states:back

  10. The United States contends that it is entitled to summary judgment on three grounds: (1) the plaintiffs do not have standing to sue the United States in their individual capacities under the Assignment of Claims Act; (2) the plaintiffs cannot claim the deduction because it constitutes a "split interest trust" in violation of IRC section 2055(e)(2); and (3) the plaintiffs cannot claim the deduction based on the premise that the will had been reformed under IRC section 2055(e)(3)(B) because the original will contained no reformable interest as defined in IRC section 2055(e)(3)(c).back

  11. Revenue Ruling 89-31 explains:back

  12. The explanation for the provision stated in full:back

  13. A brief notation of the facts of Shriners:back

  14. Private Letter Ruling 9623019 is particularly illustrative:back

  15. section 3727 states in part:back

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