96 T.C. 675 (1991), 1770-89, Estate of Jalkut v. C.I.R.
|Citation:||96 T.C. 675|
|Opinion Judge:||NIMS, CHIEF JUDGE:|
|Party Name:||ESTATE OF LEE D. JALKUT, DECEASED, NATHAN M. GROSSMAN, EXECUTOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent|
|Attorney:||John A. Simonetti, for the petitioner. Vijay S. Rajan, for the respondent.|
|Case Date:||April 29, 1991|
|Court:||United States Tax Court|
In 1971, D created a revocable trust. In the absence of his incapacity, D was the sole permissible beneficiary of the income and principal of the trust during his lifetime. D named himself trustee of the trust. In 1984, D was informed that he had inoperable cancer. In 1984, D made various gift transfers from the revocable trust. In January, 1985, D's physician declared that D would no longer be able to serve as trustee. At that time, substitute trustees were appointed for the revocable trust and additional gift transfers were made from the trust. D died testate in 1985. Held, gift transfers from the revocable trust effected in 1984, although within three years of D's death, are not included in D's gross estate pursuant to I.R.C. sections 2035(d)(2) and 2038(a)(1). Held further, gift transfers from the revocable trust effected in 1985 and within three years of D's death are included in D's gross estate pursuant to I.R.C. sections 2035(d)(2) and 2038(a)(1).
Respondent determined a deficiency in petitioner's Federal estate tax in the amount of $55,184.
The issue for decision is whether gift transfers made from the decedent's revocable trust within three years of his death are included in his gross estate pursuant to sections 2035(d)(2) and 2038(a)(1). (Unless otherwise indicated, section references are to sections of the Internal Revenue Code in effect as of the date of the decedent's death. Rules references are to the Tax Court Rules of Practice and Procedure.)
This case was submitted fully stipulated. The stipulation of facts and attached exhibits are incorporated herein by this reference.
On September 28, 1971, Lee D. Jalkut (decedent) created the Lee D. Jalkut Revocable Trust (revocable trust). The
revocable trust was funded by an inter vivos transfer to the trust of decedent's entire estate, including his personal residence, bank and brokerage accounts and publicly-traded stocks.
The decedent appointed himself trustee of the revocable trust and maintained the power to " amend or revoke [the trust] in whole at any time or in part from time to time in any respect * * *."
On June 27, 1983, the decedent executed an Eleventh Amendment to the trust agreement amending the revocable trust in its entirety. Article III of the trust agreement, relating to payments during the life of the decedent, provided in pertinent part:
During the lifetime of the Grantor, the Trustees shall pay to the Grantor from the trust estate, the income and such sums from the principal as he may request.
If at any time or times the Grantor is unable to manage his affairs, the Trustees may use such sums from the income and principal of the trust estate as the Trustees deem necessary or advisable for the care, support and comfort of the Grantor or his descendants or for any other purpose the Trustees consider to be in the best interests of the Grantor, adding to principal any income not so used. The Trustees are also authorized to make such payments for the benefit of the descendants of the Grantor and such other person or persons as the Grantor had theretofore been accustomed to make (except that no payment in any calendar year to any such descendants or other person shall exceed the maximum amount allowable as an exclusion under Internal Revenue Code Section 2503(b) as amended from time to time), and in addition, may continue to make such payments for philanthropic purposes or otherwise as the Grantor had been accustomed to make prior to such illness or disability; provided, however, that the primary consideration of the Trustees shall at all times be the support and welfare of the Grantor.
The trust agreement contained no further dispositive provisions applicable during the decedent's lifetime.
In 1984, the decedent was diagnosed as having inoperable cancer.
On October 23, 1984, the decedent executed a Thirteenth Amendment to the trust agreement. Article V of the amendment, entitled " Disposition of Trust Estate Upon Death of the Grantor," provided for the payment of specific gifts and the distribution of personal property from the revocable trust to named individuals and organizations. The
remaining assets of the revocable trust were to be held in trust for the benefit of decedent's children.
Article VIII of the Thirteenth Amendment of the trust agreement provided that if the decedent should be unwilling or unable to act as trustee for any reason, then Rosehelen Klein-Fields and Nathan M. Grossman would act as co-trustees of the revocable trust.
On November 14, 1984, the decedent established the Lee Jalkut Family Trust (family trust), an irrevocable trust designed to benefit four of his grandchildren. The family trust was funded by transferring 4,810 shares of a mutual fund with a value of $40,355.90 from the revocable trust.
On December 12, 1984, the decedent established an irrevocable trust for the benefit of Anna S. Jalkut and Jane Jalkut (Jalkut trust). The Jalkut trust was funded by transferring $20,000 from the revocable trust.
On January 25, 1985, the decedent's personal physician wrote to Rosehelen Klein-Fields and Nathan M. Grossman and advised that due to the decedent's failing physical and mental condition, the decedent would no longer be able to act as trustee of the revocable trust. At that time, Rosehelen Klein-Fields and Nathan M. Grossman assumed the duties of co-trustees of the revocable trust.
On January 25, 1985, the co-trustees made the following transfers from the revocable trust:
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