Estate of Thelma G. Hurford, Deceased, Donor, G. Michael Hurford, Independent Executor, (2008)
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Estate of Thelma G. Hurford, Deceased, Donor, G. Michael Hurford, Independent Executor, (2008)
T.C. Memo. 2008-278
UNITED STATES TAX COURT ESTATE OF THELMA G. HURFORD, DECEASED, DONOR, G. MICHAEL HURFORD, INDEPENDENT EXECUTOR, Petitioner v.COMMISSIONER OF INTERNAL REVENUE, Respondent ESTATE OF THELMA G. HURFORD, DECEASED, G. MICHAEL HURFORD, INDEPENDENT EXECUTOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 23954-04, 23964-04. Filed December 11, 2008.William A. Roberts and Kyle Coleman, for petitioners.Nancy B. Herbert, Richard J. Hassebrock, and Gary R. Shuler, for respondent.CONTENTS FINDINGS OF FACT .......................................... 3 A. The Hurford Family ............................... 3 B. Gary's Death...................... ............... 6 C. Thelma's Diagnosis................................ 11 D. Garza's Plan...................................... 13 E. Execution of Garza's Plan - Phase I............... 16 1. Transfers to HI-1............................ 19 2. Transfers to HI-2............................ 25 3. Transfers to HI-3............................ 27 F. Execution of Garza's Plan - Phase II............. 28 1. Value of the FLP Property.................... 28 a. HI-1's Value............................ 29 b. HI-2's Value............................ 30 c. HI-3's Value............................ 31 d. Discounts............................... 31 2. Creation of the Private Annuity.............. 33 3. How the Hurford Private Annuity Worked....... 34 G. Thelma Hurford's Death and Tax Returns........... 36 H. Estate and Gift Tax Returns' Audit............... 43 OPINION ................................................... 45 I. What is Includable in Thelma's Estate?................ 45 A. Positions of the Parties......................... 47 B. The Private Annuity and the FLPs................. 48 1. Was the Private Annuity Effective to Remove Assets from Thelma's Estate?................. 52 a. Was the Transfer of Thelma's Interest in the FLPs for the Private Annuity Bona Fide and for Adequate and Full Consideration?. 52 b. Did Thelma Retain a Prohibited Interest in the Property She Transferred to Her Children through the Private Annuity?... 58 2. Were the FLPs Valid?........................ 61 a. Was the Creation of the FLPs Bona Fide and for Adequate and Full Consideration?..... 61 b. Did Thelma Retain the Possession or Enjoyment of, or the Right to the Income From, the Property She Transferred to the FLPs in Violation of Section 2036 (a)(1)?. 72 C. The Family and Marital Trusts.................... 75 D. Gifts Thelma Made in February 2000............... 78 II. Attorney's Fees.................... .................. 78III. Negligence............................................. 80MEMORANDUM FINDINGS OF FACT AND OPINION HOLMES, Judge: It is a truth universally acknowledged, that a recently widowed woman in possession of a good fortune must be in want of an estate planner.Thelma Hurford had devoted her life to family and friends, leaving the management of the finances to her husband Gary. When he died suddenly, she had to learn what they owned and decide what to do with it. While she struggled with this burden, she was herself stricken with cancer and so had to arrange the accelerated planning of her own estate. Two attorneys vied for her attention and she chose Joe B. Garza.She lost her life to the cancer. We must now decide how much of her estate will be lost to taxes.FINDINGS OF FACT A. The Hurford Family Gary T. Hurford was born in West Texas in unpromising circumstances and went at a young age to work on oil rigs. There he met a petroleum engineer whose clean clothes and new car suggested to young Gary that education might lead to a better life. He soon gave up roughnecking and enrolled at the University of Texas. He discovered there that he had an aptitude for engineering, and after graduation he was hired by the Hunt Oil Company. He rose steadily and after 25 years became the company's first president not named Hunt. He prospered and grew rich.Thelma also came from a modest background, the daughter of immigrants. She was an elementary school teacher when she met Gary and they soon wed. In due course, she became a mother and devoted herself to working inside the home.Much of this work lay in rearing three children; all of whom are now married with children of their own. The oldest is Gary Michael Hurford, known as Michael. Michael grew up in Texas, went to the University of Texas at Austin, and then to medical school in San Antonio. He became a psychiatrist and practices in Kentucky, where he also was a resident when the petition was filed.David T. Hurford is the middle child. David graduated from Southwest Texas State University, but has struggled with difficult personal problems, some of them severe, for much of his life. His parents and his siblings acknowledged this and have tried to protect him, particularly in his finances. While his parents were alive, David stayed close by and worked for many years on one of his dad's ranc...See the full content of this document
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