Charitable Trust Reformation

Charitable Trust Reformation

News story posted in U.S. District Court on 6 April 2001| comments
audience: National Publication | last updated: 16 September 2012


A U.S. District Court vacated an order which granted an estate tax refund from a charitable deduction.

Cynthia Harbison, et al. v. United States; 87 AFTR2d Par. 2001-734; No. 1:98-CV-1675-BBM (14 Feb 2001)


Decedent's estate was valued at $1.9 million and her will provided a life estate in trust to her brother, with remainder to 8 charities after satisfaction of two $1,000 specific bequests to her granddaughters. Brother died before Decedent's estate tax return was filed but after Executor distributed $33,000 to him. The trust for Brother was not in a form that qualified for an estate tax charitable deduction under Code Section 2055(e)(2) and the Executor neither sought a reformation nor attempted to claim the deduction. Granddaughters contested the will, obtained a settlement, and filed an amended Federal estate tax return claiming a $279,000 refund. Under the probate court settlement agreement, the $33,000 distributed to decedent's Brother was treated as a specific bequest, the trust for his benefit was treated as if it never came into being, the charitable beneficiaries were permitted to keep their bequests and the granddaughters were entitled to keep their $1,000 specific bequests plus any estate tax refund from the government. The granddaughters prepared and filed an amended Federal estate tax return claiming a charitable deduction and refund and were denied by the IRS on grounds that the trust was never properly reformed into one that qualified for an estate tax charitable deduction.

The granddaughters sought and obtained a summary judgment against the IRS on the basis of Code Section 2055(e)(3)(F). This esoteric "special rule" was cited for the proposition that where the sole income beneficiary of a split-interest testamentary trust with charitable remaindermen dies before the due date for filling the decedent's estate tax return, the trust is a reformable one for which a charitable deduction must be allowed as if the trust had met the requirements of Code Section 2055(e)(2) on the date of the decedent's death. On the surface, the facts of this case appeared to satisfy the criteria for the special rule, i.e., the brother with the life estate died before the estate tax return was due, the trust had 8 charitable remainder beneficiaries and the probate court apparently had "reformed" it.

However, the IRS successfully argued before the court that: (i) because Brother was permitted to invade the principal of the trust by its expressed terms before his death for any reason and did so to the tune of $33,000, the charities' remainder interest was unascertainable at decedent's death and therefor, unsuitable for a deduction; (ii) because the trust came into being under state law at decedent's death and Brother made no qualified disclaimer of his interest (and in fact confirmed it by his $33,000 trust principal withdrawal), the trust did exist (notwithstanding the settlement agreement to the contrary) and the special rule of Code Section 2055(e)(3)(F) cannot apply because Brother was more than just an "income" beneficiary of the trust; (iii) the principal of Rev. Rul. 89-31 that charitable estate tax deductions can be allowed for reformed direct gifts to charities resulting from certain will contests and reformations that remove all intervening non-charitable interests does not apply because it was not Brother who contested the will and he in fact accepted his intervening non-charitable interest by withdrawing principal before he died; and (iv) because the settlement agreement did not change any distribution or bequest under the will that would have occurred had the will not been contested and the plaintiffs did not receive any money or property through the agreement except for the right to bring a tax refund action.


Were the estate tax consequences of the split-interest testamentary trust the decedent established for her brother ever properly explained by the drafter? Did the drafter of the will question the decedent about the extent of her brother's needs and her desire to cover them -- or was she truly adamant about giving him a life interest in her entire trust estate with unfettered access to the principal?



This refund action arising under the Internal Revenue Code ("IRC") is currently before the court on the defendant's motion to alter or amend the judgment [Doc. No. 56-1] and the defendant's motion to re-tax costs [Doc. No. 59-1]. For the reasons stated below, the motion of the United States to alter or amend the November 17, 2000 order of this court is hereby GRANTED, and the motion to re-tax costs is hereby DENIED as moot.


On October 4, 1993, Evelyn C. Minor ("Minor") died leaving an estate of approximately $1,965,000. 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 executor3 liberally, use the trust assets to care for him.4 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.5 The will 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, 1994,6 contending that Minor lacked testamentary capacity to execute her will.7 On July 25, 1995, the executors and the plaintiffs 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 -- the amount he received from the executor of the will before his death. The settlement agreement also stated that Henry's death "prior to the funding of the trust established under the Will and prior to filing of the federal estate tax return for the Estate eliminated the need to establish a trust for his benefit." The 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 under the will as originally drafted.8 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.

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 $279,320.9 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.10

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 plaintiffs 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]. By order dated November 17, 2000, this court granted the plaintiffs' motion for summary judgment and entered judgment in favor of the plaintiffs [Doc. No. 54-1]. The government has now moved to alter or amend the judgment [Doc. No. 56- 1]. In addressing the motion to alter or amend the judgment, the court will first consider the government's arguments for altering the court's order of November 17, 2000. The court will then consider the plaintiffs' additional arguments in support of their original motion for summary judgment.


In the order dated November 17, 2000, the court ruled that the plaintiffs were entitled to a refund from a charitable deduction under IRC section 2055(e)(3)(F) because Henry Minor, the life beneficiary, of the split interest trust, died before the estate filed its estate tax return. In its motion to alter or amend the judgment, the government argues that section 2055(e)(3)(F) does not apply in this case because Henry Minor was permitted by the will to invade the corpus of the trust and did exercise his rights. The parties do not dispute that Henry Minor received $33,354.93 from the estate. However, the parties dispute that this amount was an " invasion" of the trust corpus. After reconsidering these arguments, the court agrees with the United States.

First, the court finds that the language of the will provision which gave the trustee wide discretion to distribute the corpus of the trust to Henry made the remainder of the trust "unascertainable" for the purposes of a charitable deduction. "Ascertainability at the date of death of the amount going to charity is the test. To be presently ascertainable the power of the trustee to divert the corpus from the charities must be restricted by a fixed standard." Estate of Marine v. Commissioner of Internal Revenue, 990 F.2d 136, 138 (4th Cir. 1993). In Ithaca Trust Co. v. United States, 279 U.S. 151 (1929), the Court upheld a deduction for the remainder of a trust dedicated to charity even though the trustees were authorized to invade the corpus if necessary to "maintain [the widow] in as much comfort as she now enjoys." The Court found: "The principal that could be used was only so much as might be necessary to continue the comfort then enjoyed. . . . The income of the estate at the death of the testator . . . was more than sufficient to maintain the widow as required. There was no uncertainty appreciably greater than the general uncertainty that attends human affairs." Id. at 154. However, in Merchants Bank of Boston v. Commissioner of Internal Revenue, 320 U.S. 256 (1943), the Court found that a power to invade principal as the trustee deemed "wise and proper for the comfort, support, maintenance, and/or happiness of the testator's widow" failed the test because "the purposes for which the widow could, and might wish to have the funds spent [for happiness], do not lend themselves to reliable prediction." Id. at 262. Similarly, in Henslee v. Union Planters National Bank & Trust Co., 335 U.S. 595 (1949), the Court rejected "pleasure" as an ascertainable standard to invade trust principal. The Court found that the ascertainability test had to be applied as of the time the testator died, and the priority given to the life beneficiary's pleasure and desire made the trustee's duty to the charitable remaindermen "ineffective to guarantee preservation of any predictable fraction of the corpus." Id. at 598 n. 3. Other courts have determined ascertainability in light of these standards. See, e.g., Wells Fargo Bank v. United States, 1 F.3d 830 (9th Cir. 1993) (holding that trust provision allowing invasion of trust corpus for home improvements and payment of federal and state income taxes was ascertainable standard); Estate of Marine, 990 F.2d at 139 (holding that trust provision allowing invasion of the trust corpus for payment to compensate persons who were helpful to the testator during his life was unascertainable).

In this case, although the trust provision does not allow the trustee to explicitly use trust assets for Henry Minor's "happiness" or "pleasure," the provision clearly imparts the trustee discretion to distribute as much estate funds as possible for Henry's benefit. The provision even instructs that the trust's primary purpose is for Henry and that the trust assets should not "be conserved so that the remainder beneficiaries might benefit." See supra. note 4. Therefore, based upon the language of the trust provision, the remainder was not "ascertainable" at the time of the testator's death.

The plaintiffs also contend that the money did not come from the split-interest trust because the trust had not been funded and the will had not been probated before Henry died -- thus Henry could not have received the funds from the trust. However, in Georgia, "[a] will . . . take[s] effect instantly upon the death of the testator however long probate may be postponed." O.C.G.A. section 53-4-2 (formerly O.C.G.A. section 53-2-3). Moreover, IRC section 2055(a), which deals with qualified disclaimers of powers to invade, states in part:

For purposes of this subsection, the complete termination before the date prescribed for the filing of the estate tax return of a power to consume, invade, or appropriate property for the benefit of an individual BEFORE SUCH POWER HAS BEEN EXERCISED BY REASON OF THE DEATH OF SUCH INDIVIDUAL or for any other reason shall be considered and deemed to be a qualified disclaimer with the same full force and effect as though he had filed such qualified disclaimer.

Id. (emphasis added); see also Treas. Reg. section 20.2055-2(c). Therefore, because Henry exercised his power to invade property of the estate before his death, the funds distributed to Henry would negate any disclaimer that the estate might assert.11 The amount that Henry received from the estate within the one month that he survived his sister also indicates that the funds distributed to Henry was an invasion of trust principal and not income, thus section 2055(e)(3)(F) would not apply to this case.


The court will now consider the plaintiffs' argument originally asserted in their motion for summary judgment. The plaintiffs' central argument for claiming the refund on behalf of the estate is that the terms of the settlement agreement reformed the will by eliminating the split interest and transferring the charitable interest directly to the charitable organizations -- thus falling within section 2055(a)(2) and not through the reformation provisions of section 2055(e)(3). In support of their argument, the plaintiffs rely almost exclusively on Flanagan v. United States, 810 F.2d 930 (10th Cir. 1987) and Revenue Ruling 89-31, 1989-1 C.B. 277.12

In Flanagan, the testator's will contained a split interest trust which instructed the trustee (in the trustee's "uncontrolled discretion") to make distributions from the trust's net income and principal for his sister's "comfort and support" during her lifetime. The remainder of the trust was to be distributed to an unspecified charity. After the testator's death, the sister (the lifetime beneficiary) and other intestate heirs filed an objection to the trust and a petition for letters of administration, contesting the validity of the trust as a testamentary instrument and seeking the distribution of the estate under state intestacy provisions. The heirs and trustees ultimately executed a stipulation and settlement agreement whereby a charitable organization received specific properties valued at a set price. The settlement agreement also stipulated that the remainder of the estate was to be distributed to the heirs in accordance with state intestacy laws. The estate then filed its federal estate tax return and claimed a charitable deduction for the value of the property transferred directly to the charity. The IRS disallowed the deduction and assessed additional taxes. After bringing suit in federal court for a refund of taxes paid, the district court held that the estate was not entitled to the deduction and dismissed the case. On appeal. the Tenth Circuit reversed, holding that the settlement agreement effectively eliminated the split interest provision in the trust and the property passed directly to charity under IRC 2055(a)(2). In ruling in favor of the estate, the court noted the estate's argument for a charitable deduction:

The administrator [of the estate] does not contend that the charitable interest here qualifies within one of the section 2055(e)(2) exceptions but rather that there was no split interest transfer in the present case that would be subject to the provisions of section 2055(e). He contends that the charitable interest passed directly to the foundation pursuant to the Stipulation and Settlement Agreement that settled the lawsuit brought by [the testator's] heirs. The administrator argues that since the interest passed directly with no intervening or simultaneous noncharitable interest in the same property, section 2055(e) is not applicable and the charitable deduction is allowable under section 2055(a)(2).

Flanagan, 810 F.2d at 933. The court agreed with this argument and held:

We hold that the amount taken outright by an otherwise qualified charitable corporation or for an otherwis qualified charitable use pursuant to the settlement or compromise of a bona fide will contest qualifies for a charitable deduction under section 2055(a)(2). In such circumstances, there is no split interest transfer to which section 2055(e)(2) is applicable, and a charitable deduction under section 2055(a)(2)is allowable for the value of the property that actually passed directly to the charitable foundation.

Id. at 935. In finding for the estate, the court supported its conclusion by noting that "[t]his case involves none of the abuses of the charitable deduction that section 2055(e)(2) was enacted to eliminate. . . . The deduction is sought for the actual benefit passing to the charitable foundation. This is not a case in which a hypothetical future charitable interest exceeds the actual benefit to the charity." Id.

The IRS later adopted the holding and reasoning of Flanagan in Revenue Ruling 89-31, 1989-1 C.B. 277, where the IRS permitted a charitable deduction under almost identical circumstances. Similar to the facts of Flanagan, the life estate beneficiary of the split interest trust contested the will in good faith and ultimately settled with the estate. The resulting settlement agreement mandated that the estate make an immediate payment of money to the life estate beneficiary and distributed the balance of the residuary estate to the charity. The IRS allowed the charitable deduction and concluded its ruling by stating:

In situations involving settlements of bona fide will contests the Service will no longer challenge the deductibility of immediate payments to charities solely on the ground that they were made in lieu of a split interest that would not constitute an allowable deduction under section 2055(e)(2) of the Code. However, settlements of will contests will continue to be scrutinized in order to assure that the settlement in question is not an attempt to circumvent section 2055(e)(2) by instituting and settling a collusive contest.


In this case, the United States argues that Flanagan and Revenue Ruling 89-31 do not apply because Henry Minor (the life beneficiary) did not contest the will and received substantial distributions from the estate before his death. The government contends that the settlement agreement which purportedly reformed the will merely memorialized the distribution that Henry had already received before his death by recharacterizing the distribution as a bequest. Although the government does not dispute that the plaintiffs' initial suit to contest the will was brought in good faith and was not "collusive," the government argues that the settlement agreement did not change any distribution or bequest under the will that would have occurred had the will not been contested. Thus, because the plaintiffs did not receive any money or property through the settlement agreement except for the right to bring this refund action, the government contends that the will contest was merely a nuisance suit brought only for the purposes of avoiding estate taxes. In support of its argument, the United States relies heavily on Burdick v. Commissioner, 979 F.2d 1369 (9th Cir. 1992) and Estate of La Meres v. Commissioner, 98 T.C. 294 (1992).

In Burdick, the IRS denied the estate's request for a charitable deduction on its estate tax return because of the existence of a split interest trust. After the IRS denied the deduction, the estate contacted the charity and asked if the charity would agree to receive an immediate payment and accede to the termination of the trust in lieu of receiving a remainder interest. The charity agreed to the settlement, and the estate again filed for a charitable deduction. The IRS (and later the Tax Court) denied the deduction, stating that the trust was terminated solely to obtain a charitable deduction. The Ninth Circuit upheld the Tax Court and agreed with the Service's position, holding: "Here, there is no will contest. Taxpayer is concerned solely with gaining a charitable deduction by skirting the split-interest rules of IRC section 2055(e). In this situation, we . . . hold that Taxpayer can only obtain a charitable deduction by complying with the relief provision of IRC section 2055(e)." Burdick, 979 F.2d at 1372; see also Estate of Strock v. United States, 655 F. Supp. 1334, 1339 (W.D. Pa. 1987).13

Similarly, in La Meres, the trustees of a split interest trust split the trust in two, one to fund the bequests to the individuals and the other to fund the bequests to the charities. The estate then sought to claim a deduction for the bequests to the charities on the premise that the split interest bequests were cured. The trustees argued that their fiduciary duty to preserve trust assets served as an independent reason for a valid trust modification. The Tax Court denied the deduction and rejected the trustees' argument that their fiduciary duty to conserve trust assets provided a reason independent of tax considerations. The court noted: "The conservation of trust assets will always be a reason for attempting to qualify an otherwise nonqualifying split interest by means other than that prescribed in section 2055(e)(3)." La Meres, 98 T.C. at 309. The court also disregarded the reasoning in Flanagan that relied on the legislative history of section 2055 to promote charitable bequests and to allow a deduction when the abuse section 2055(e) was enacted to prevent did not occur. The court stated:

Petitioner also argues that courts have permitted retroactive modifications similar to the modification in the instant case, because the modification avoided the abuse which Congress was concerned with when it prohibited the deduction for split-interest trusts. The legislative history indicates that section 2055(e)(2) was enacted to prevent estates from claiming a deduction for the charitable bequest in excess of the value of the property actually received by the charity. . . . We acknowledge that deductions in excess of amounts actually received by charities were one of the abuses which this legislation addressed; but we cannot ignore the plain reading of section 2055(e)(2) which denies deductions for split interest charitable remainder trusts unless it is in the form of an annuity trust, a unitrust, or a pooled income fund. Thus, we do not think it appropriate to consider legislative history to determine whether a split-interest bequest is deductible when section 2055(e)(2) clearly provides otherwise.

Id. at 309-10 (citations omitted).

In the present case, the court finds that the plaintiffs' will contest and subsequent settlement agreement would not entitle the plaintiffs to a charitable deduction under section 2055(a). This case is distinguishable from Flanagan and Revenue Ruling 89-31. In Flanagan (and other cases in agreement with Flanagan's holding) the life estate beneficiary contested the will or the surviving spouse elected against the will to receive a greater share of the estate. The settlement agreements in those cases made bequests from the estate directly to the charities and to the contesting beneficiaries "with no intervening or simultaneous noncharitable interest in the same property." Here, Henry Minor (the life beneficiary) did not contest the will and admittedly received $33,354.93 in estate assets before his death. Thus, there clearly was an intervening simultaneous noncharitable interest in the same property with the noncharitable beneficiary receiving a portion of the property.

Furthermore, Henry died before the plaintiffs contested the will and commenced judicial proceedings, thus the later will reformation was both too late and unnecessary because the charities as remaindermen would have received their share regardless of the settlement. Although the plaintiffs contested the will in good faith and this case may have involved "none of the abuses of the charitable deduction that section 2055(e)(2) was enacted to eliminate," the court cannot ignore that Henry Minor, as the life beneficiary with the power to invade the trust, received his intervening noncharitable share of estate property. The settlement agreement only served as an "after the fact" agreement whereby the plaintiffs could seek a tax deduction. Thus, the subsequent settlement agreement, although premised on the non-tax reason of satisfaction of a will contest, clearly had the sole intention of seeking a tax deduction. Accordingly, the plaintiffs' request for a refund must be denied on this ground as well.

Finally, the plaintiffs also asserted in their motion for summary judgment that the settlement agreement could have reformed the will (in the alternative to a Flanagan reformation) under IRC section 2055(e)(3)(B). However, the settlement agreement did not modify the split-interest into the form of an annuity trust, a unitrust or a pooled income fund. The settlement agreement only attempted to retroactively terminate the split-interest trust and memorialize the distributions to Henry Minor while he was alive and the subsequent bequests to the charitable remaindermen. The settlement agreement could not serve to reform the will under section 2055(e)(3)(B).

The defendant has also moved to recalculate the costs assessed against it (Doc. No. 59-1] as a result of the November 17, 2000 order of this court. Because the order will be vacated as a result of the ruling contained herein, and the plaintiffs are no longer the prevailing party, the defendant's motion to re-tax costs is DENIED as moot.

In conclusion, the court's order dated November 17, 2000 [Doc. No. 54-1] is VACATED. The defendant's motion to alter or amend the judgment [Doc. No. 56-1] is GRANTED and judgment is entered in favor of the United States. The defendant's motion to re-tax costs [Doc. No. 59-1] is DENIED as moot.

SO ORDERED, this 14th day of February, 2001.

Beverly B. Martin
United States District Judge


2. I direct that my co-Trustees be liberal in providing for the maintenance, care and support of the beneficiary, and that the Trust be used and applied in every way possible so as to maintain and care for my brother in our homeplace . . . or any other homeplace in which he may choose to reside, with whatever kind of in-home services that may be needed so as to keep him at home, including 24-hour nursing and sitting services. . . . Therefore, the co-Trustees shall have the authority to encroach upon the corpus of the Trust Estate when necessary in their sole and exclusive discretion to provide for the comfort and care of the beneficiary, even to the extent of completely depleting the Trust Estate, leaving no Trust Estate for the benefit of the remainder beneficiaries named hereinafter. Again, it is not my intention that the corpus of the Trust be conserved so that the remainder beneficiaries might benefit, but rather that the lifetime beneficiary have available the benefit of the entire Trust to improve and enhance his quality of life for and during his lifetime.

. . . .

4. It is my primary goal and purpose in establishing this Trust that it shall be applied for the exclusive benefit of my brother, Dr. Henry W. Minor, Sr., and all terms of this trust, wherever they may appear, shall be interpreted, construed and applied to conform with such goal and purpose. By way of illustration and not limitation. In meeting such goal and purpose, the co-Trustees may provide items such as spending money, food, health services not otherwise available (including sitters or domestic help, housekeepers, social workers, home health aids, nurses and hospice personnel, and other in-home assistance), clothing, housing costs, radios or other electronic equipment, vacations. movies or other forms of entertainment, and trips. . . .

Id. (emphasis added).

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.

  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. Item V of the will stated in part:back

  5. 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

  6. 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 (after Henry's death), the caveat proceeded under the plaintiffs' names.back

  7. 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

  8. The settlement agreement states in part the following:

    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, (1) 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.
  9. Although the amended return stated a demand for refund of $290,796, the plaintiffs are suing for a refund of $279,320.back

  10. Paragraph five of the order states:

    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.
  11. In their motion for summary judgment, the plaintiffs also argued in the alternative that the disclaimer provision in section 2055(a) would permit the estate to disclaim Henry's life interest. However, the plaintiffs admit that he received $33,354.93 before his death.back

  12. Other cases similar to Flanagan which find that post-mortem events may reform a split-interest trust include: First Nat'l Bank of Fayetteville v. United States, 727 F.2d 741 (8th Cir. 1984); Oetting v. United States, 712 F.2d 358 (8th Cir. 1983); Strock v. United States, 655 F. Supp. 1334 (W.D. Pa. 1987); Northern Trust Co. v. United States, 41 A.F.T.R.2d (P-H) 78-1523 (N.D. Ill. 1977).back

  13. The court also noted: "Where the only apparent reason for termination or modification of an otherwise nonqualifying split- interest charitable bequest is circumvention of the requirements of section 2055(e)(2)(A), an estate tax deduction will not be allowed even for the amount of a direct payment to the charitable organization." Burdick, 979 F.2d at 170.back

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