Estate of Holland v. Commissioner
| Decision Date | 30 June 1997 |
| Docket Number | Docket No. 7397-94. |
| Citation | 73 T.C.M. 3236 |
| Parties | Estate of Carolyn W. Holland, Deceased, Jack K. Holland, Lewis G. Holland, Sr., and Betty H. Kann, Executors v. Commissioner. |
| Court | U.S. Tax Court |
S. Jarvin Levison, Atlanta, Ga., for the petitioner. Clinton M. Fried, for the respondent.
Respondent determined a deficiency of $388,074 in the Federal estate tax of Carolyn W. Holland (decedent), who died on November 25, 1989. Respondent also determined an accuracy-related penalty of $77,615 pursuant to section 6662.1
After concessions,2 the issues for decision are: (1) Whether decedent transferred the life estate she held in a house when she attempted to convey fractional fee simple interests to her children as gifts in 1984, 1985, and 1986. We hold she did. (2) Whether the 12 $10,000 annual gifts decedent made in each of the years 1985 through 1988 were transfers of present interests that qualify for the exclusion under section 2503(b). We hold they are completed transfers of present interests that may be excluded from decedent's taxable gifts, as set out below. (3) Whether 12 checks decedent wrote and delivered to her agent 4 days before she died were completed gifts, or in the alternative claims against the estate that may be deducted under section 2053(a)(3). We hold they are neither completed gifts nor claims against the estate. (4) Whether decedent had an enforceable, personal obligation to repay two transfers of $50,000 that she received from the J. Kurt Holland Residual Trust so that $100,000 may be deducted from the value of the gross estate under section 2053(a)(3). We hold she did not. (5) Whether the expense of 5 years of maid service may be deducted from the gross value of the estate as an administration expense pursuant to section 2053(a)(2). We hold it may not. (6) Whether petitioner is subject to an accuracy-related penalty under section 6662. We hold it is, to the extent set out below.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioner is the estate of Carolyn W. Holland (decedent), who died testate, on November 25, 1989, in Atlanta, Georgia (Atlanta). Lewis G. Holland, Sr. (Lewis), Betty H. Kann (Betty),3 and Jack K. Holland (Jack) (the executors) are the executors of the estate. The executors had a mailing address in Atlanta at the time the petition in this case was filed. For convenience, we present a general background section and combine our findings of fact with our opinion under each separate issue heading.
A. General Background
Decedent was born in Atlanta, on July 21, 1914. She was married to the late J. Kurt Holland (Holland), an attorney who practiced law in Atlanta. Decedent is survived by three children, Lewis, Betty, and Jack, and by eight grandchildren. Lewis and Betty each have three children, and Jack has two children.
Jack, the youngest son of decedent, is an attorney who formerly worked in the National Office of the Internal Revenue Service (IRS) in Washington, D.C., for 3 years. He has practiced law in Atlanta since 1973, and at the time of trial was a partner in the firm of Arnall Golden & Gregory. Jack's practice includes estate planning and general tax services.
Decedent gave Jack a power of attorney on May 21, 1982. Jack is a coexecutor of decedent's estate, and cotrustee for the Carolyn W. Holland Trust (the Carolyn Trust), the eight Weinstock Trusts created by decedent's mother for decedent's grandchildren, and the J. Kurt Holland Residual Trust (the JKH Trust). He is also the agent for decedent and each of the beneficiaries of the trusts.
On February 25, 1991, Jack, as one of the executors, filed a United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) with the Atlanta Service Center of the IRS.
Decedent's mother, Mrs. Paula M. Weinstock (Weinstock), owned approximately 50 acres of land (the Weinstock Property) between Roswell Road and Lake Forrest Drive in Fulton County, Georgia. Decedent's father, Jack Weinstock, operated a florist business on a portion of the property facing Roswell Road. On another portion of the property, with access to Lake Forrest Drive, the Weinstocks built a house.
Weinstock sold approximately 2 acres of the Weinstock Property to Holland, where the Hollands built a house. Later, the Hollands gave a 1-acre portion of their property to their daughter, Betty Kann (then Koblitz), who built a house on her parcel.
Sometime during the 1950's the Weinstocks gave their home and approximately 11 acres to decedent's sister, Mrs. Nathan, which she used as a residence for her family. The Weinstocks then built a smaller residence on a different portion of the Weinstock Property (the Weinstock Residence).
The Weinstock Residence consisted of a house and 1.58 acres of land on Lake Forrest Drive. The executors of the Weinstock estate conveyed a life estate in the Weinstock Residence to decedent on August 10, 1984. Item IV of Weinstock's will provided that decedent had the right to sell in fee simple the Weinstock Residence; however, if she did not reinvest the proceeds in another home, the proceeds were required to be delivered to and held in trust by the trustees of the Carolyn Trust. The Carolyn Trust was created by Weinstock's will. If decedent did purchase another home with the proceeds of the sale of the Weinstock Residence, decedent's interest in the new home would continue in the same manner as it existed before such sale; that is, she would have a life estate in the new home.
Although decedent was devised a life estate in the Weinstock Residence, due to a careless reading of the will she believed that she had received a fee simple absolute. At the date of the devise, the fair market value of the property was $90,000, and decedent's life estate had a value of $54,470.4
On several occasions prior to 1980, Weinstock gave decedent and Mrs. Nathan undivided interests in the Weinstock Property. At the time of her death, on March 3, 1984, Weinstock owned 65 percent and decedent and Mrs. Nathan each owned 17½ percent of an undivided interest in approximately 28.75 acres of the Weinstock Property. Weinstock's interest in the 28.75 acres was devised in equal shares to two trusts created by her will, the Carolyn Trust and the Betty W. Nathan Trust (the Nathan Trust).
On December 5, 1982, Weinstock created trusts for each of her 10 great-grandchildren (the Weinstock Trusts).5 Each of the 10 trusts were identical except for the name of the beneficiary, and provided in relevant part:
I. Additional Property. Either the Grantor or any person, with the consent of the Trustee, may add other properties to the trust hereby created by transferring such property to or making such insurance payable to the Trustee hereunder by deed, assignment, bequest or devise, and if so added such property shall be covered by the provisions hereof the same as if originally hereunder.
II. Dispositive Provisions. The Trustee shall hold, manage, invest and reinvest the assets of the trust, collect the rents, interest, dividends and other income therefrom, deduct the costs and expenses thereof and administer the trust as follows:
(a) At any time and from time to time during each calendar year the Beneficiary may demand by written instrument delivered to the Trustee up to the value of any gifts transferred hereto during that year, payable by the Trustee upon receipt of demand made. If the Beneficiary fails to exercise this right during any calendar year, this right as to that calendar year shall lapse and shall not be cumulative. If the Beneficiary is a minor or otherwise is laboring under any legal disability, the Beneficiary's guardian, or if no guardian exists, the person having custody over such Beneficiary, shall be authorized but not required to make such written demand on behalf of the Beneficiary, and the property received pursuant to such written demand shall be held by the guardian or custodian for the benefit and use of such Beneficiary.
Whenever any transfer of property is made to the Trustee hereunder, the Trustee shall give immediate written notice of the withdrawal rights hereunder, and any such transfer, to the Beneficiary or, if the Beneficiary of Grantor is under legal disability, to his or her legal guardian or, in case no legal guardian has been appointed for the Beneficiary, to the person having custody of such Beneficiary. The Beneficiary (or his guardian or custodian) may exercise the withdrawal right granted hereunder by delivering a written instrument to the Trustee at any time on or before the sixtieth (60th) day after receipt of notice from the Trustee, or the last day of such calendar year, whichever shall first occur. The Trustee shall be authorized in satisfying any withdrawal right to distribute cash or other property of the trust.
Issue 1. Whether Decedent Transferred Her Life Estate in the Weinstock Residence When She Attempted To Give Fractional Fee Simple Interests to Her Children in 1984, 1985, and 1986
Decedent wanted to reduce her taxable estate and discussed with her family and her attorney various methods of doing so. Beginning in 1984, decedent decided to avail herself of the annual exclusion from taxable gifts provided by section 2503(b) to make a series of annual gifts with a fair market value of $10,000 to each of her three children. After a discussion with her children, decedent agreed to transfer to each child, and each child agreed to accept, one-ninth of her interest in the Weinstock Residence in 1984, 1985, and 1986 (a transfer of one-ninth of her interest each year to each child).
In August 1984, due to an error in drafting the conveyance, decedent transferred by deed her entire interest in the Weinstock Residence to her three...
To continue reading
Request your trial