Estate of Gore v. Commissioner of Internal Revenue
| Decision Date | 27 June 2007 |
| Docket Number | Dkt. No. 468-02.,Dkt. No. 467-02. |
| Citation | 93 T.C.M. 1436 |
| Parties | Estate of Sylvia Gore, Donor, Deceased, Pamela Powell, Personal Representative, Petitioner v. Commissioner of Internal Revenue, Respondent; Estate of Sylvia Gore, Deceased, Pamela Powell, Personal Representative, Petitioner v. Commissioner of Internal Revenue, Respondent. |
| Court | U.S. Tax Court |
Paul R. Hodgson and James E. Poe, for petitioner.
Elizabeth Downs, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined a deficiency of $1,071,650 in the Federal estate tax of the Estate of Sylvia Gore (the estate).1 By separate notice of deficiency, respondent determined a Federal gift tax deficiency of $918,962 with respect to Sylvia Gore's 1997 taxable year. The personal representative of the estate filed separate petitions to redetermine the deficiencies of the estate. These cases were consolidated for purposes of trial, briefing, and opinion pursuant to Rule 141(a) because they present common questions of fact and law. Hereinafter, we shall refer to these consolidated cases as this case.
After concessions,2 the issues presented are:3
(1) Whether the values of the assets of the Sidney Gore Marital Fund (Marital Fund assets) are includable in Sylvia Gore's (decedent's) gross estate under section 2033 or section 2041;
(2) alternatively, if decedent completed a transfer of Marital Fund assets to the Gore Family Limited Partnership (GFLP) before her death, whether the values of those assets are includable in decedent's gross estate under sections 2041, 2036, and/or 2038;
(3) alternatively, if the value of the property to be included in decedent's estate is that of a 32.667-percent limited partnership interest in GFLP, whether the value of that interest on June 12, 1997, was $1,260,472, as respondent contends, or $740,036, the value reported on the estate's Federal estate tax return;
(4) if the values of the Marital Fund assets are includable in decedent's gross estate under sections 2033, 2036, 2038, and/or 2041(a)(2), whether decedent's gross estate should be reduced by $46,664, the amount of a note payable to decedent from GFLP;
(5) if decedent completed a transfer of the Marital Fund assets to GFLP and made gifts of GFLP limited partnership interests to the trusts for decedent's children before her death, whether the gifts to the trusts should be treated, for valuation purposes, as indirect gifts of Marital Fund assets to GFLP's partners' capital accounts or as direct gifts of limited partnership interests;
(6) whether the value of a Smith Barney investment account ($102,139) is includable in decedent's gross estate under section 2033;
(7) whether decedent's estate is entitled to deduct administration expenses in excess of those already claimed and allowed under section 2053; and
(8) whether decedent's estate is entitled to deduct ad valorem tax of $3,367 under section 2053.
Some of the facts have been stipulated and are so found. The stipulation of facts and the supplemental stipulation of facts are incorporated herein by this reference. Decedent was domiciled in Tulsa, Oklahoma, at the time of her death, and her estate is administered there. The estate's personal representative, Pamela Powell (Ms. Powell or petitioner), resided in Tulsa, Oklahoma, when she petitioned the Court on behalf of the estate.
Decedent died on June 12, 1997, and was the surviving spouse of Sidney Gore, who died on January 25, 1995. Decedent and Sidney Gore were married for 49 years and had two children, Michael Gore (Mr. Gore) and Ms. Powell, and one grandchild, AP, the son of Ms. Powell.
During his lifetime Sidney Gore was involved in the oil production business. At the time of his death, the bulk of his assets consisted of investments in oil companies and in Government bonds. Sidney Gore had lived a frugal life and had accumulated considerable wealth, but he did not share the details of his finances with his family members or discuss his financial matters with them.
Decedent did not work outside of the home and did not accumulate substantial assets of her own during her marriage. Neither decedent nor her children participated in Sidney Gore's business activities or in the management of his investments, and they had little knowledge of his financial affairs.
On October 20, 1988, Sidney Gore executed a Declaration of Trust Creating the Sidney Gore Trust (Sidney Gore Trust declaration), in which he appointed himself trustee and stated his intention to fund the trust with $100 and "all of the Properties, Assets and Securities described in `Schedule A'".4 The Sidney Gore Trust declaration further provided that Sidney Gore retained the power to revoke the Sidney Gore Trust and that he was entitled to all trust income during his life.
The Sidney Gore Trust declaration also provided that, upon Sidney Gore's death, decedent would become the successor trustee of the Sidney Gore Trust and that after debts, taxes, and administration costs had been paid, the trust would be divided into two shares or funds—the Sidney Gore Marital Fund (Marital Fund) and a credit shelter fund to be known as the Sidney Gore Family Fund (Family Fund). The Family Fund was to contain property in a dollar amount equal to that which could pass free of the Federal estate tax by reason of the unified credit, and the Marital Fund was to contain the balance of the Sidney Gore Trust assets.
With regard to the principal and income of the Marital Fund, the Sidney Gore Trust declaration provided, in pertinent part, as follows:
(a) Commencing at my death and during the life of my Wife, the Trustees shall pay the income to my Wife in monthly or more frequent installments as may be convenient to her.
(b) The Trustees also shall pay to my Wife such amounts, without limitation, from the principal of the Marital Fund, as she from time to time may direct by writing filed with the Trustees, or if she is acting as a Co-Trustee hereunder by writing filed with the Trust Records, and copy thereof delivered to the Co-Trustee.
(c) In addition to the said payments, the Trustees may from time to time pay to my Wife such amounts from the principal of the Marital Fund, as they deem necessary for her support, maintenance, health and reasonable comfort, taking into consideration the standard of living to which she is accustomed at my death.
* * * * * * * *
(e) My Wife shall have and is hereby granted the power to appoint the principal and any undistributed income, to any person exercisable only by a provision in the Last Will and Testament of my Wife expressly exercising said power under the right hereby granted.
(f) Upon the death of my Wife, the Trustees shall distribute the then remaining principal and undistributed income in the Marital Trust, to such appointee or appointees (including the Estate of my Wife), in such manner as my Wife may appoint by her Last Will and Testament, and, to the extent that my Wife shall fail validly to exercise said Power of Appointment, the principal and any accrued or undistributed income, shall be distributed to the Trustees of the Family Fund, to be administered and distributed as herein provided for the Family Fund.
All Payments made by the Trustees to my Surviving Wife shall be made first out of the Sidney Gore Marital Fund, both income and principal, until said Fund is completely exhausted. Thereafter, if necessary, payments may be made from the Family Fund.
With regard to the principal and income of the Family Fund, the Sidney Gore Trust declaration provided that, during the life of decedent:
(a) The Trustees may, if the Marital Fund is exhausted, pay the income to my Wife, in monthly or more frequent installments as may be convenient to her.
(b) In addition to the said payments, if the marital fund is exhausted, the Trustees may from time to time pay to my Wife such amounts from the principal of the Family Fund, as they deem necessary for her support, maintenance, health and reasonable comfort, taking into consideration the standard of living to which she is accustomed at my death.
The Sidney Gore Trust declaration further provided that after decedent's death, the lesser of $100,000 or one-fourth of the assets remaining in the Family Fund would be distributed to each of Mr. Gore and Ms. Powell, and the balance of the assets would be divided equally into two separate funds—the Michael Gore Fund and the Pamela M. Gore Fund.5
On October 20, 1988, Sidney Gore executed his Last Will and Testament. In his will, Sidney Gore appointed decedent as executrix, and he bequeathed all personal property to her. The will devised the residue of his estate to decedent, as the successor trustee of the Sidney Gore Trust, to be held and distributed in accordance with the Sidney Gore Trust declaration.
Also on October 20, 1988, decedent executed a Declaration of Trust Creating the Sylvia Gore Trust (Sylvia Gore Trust declaration), which contained provisions substantially identical to those of the Sidney Gore Trust declaration, and a Last Will and Testament, which contained provisions substantially identical to those of Sidney Gore's will. The Sylvia Gore Trust declaration named decedent as trustee of the Sylvia Gore Trust and provided that the trust would be funded with $100 and "all of the Properties, Assets and Securities described in `Schedule A'".6 The Sylvia Gore Trust declaration also provided that decedent retained the power to revoke the Sylvia Gore Trust and was entitled to all trust income during her life.
Several years later, on January 24, 1995, Sidney Gore met with his accountant, Cecilia Bowers, in the hospital where he was hospitalized. On several previous occasions, Ms. Bowers had discussed with Sidney Gore her belief that the Sidney Gore Trust was not funded.7 At the January 24 meeting, Sidney Gore expressed to Ms. Bowers his concerns about...
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