Estate of Lassiter v. Commissioner
| Decision Date | 19 October 2000 |
| Docket Number | Docket No. 17643-98. |
| Citation | 80 T.C.M. 541 |
| Court | U.S. Tax Court |
| Parties | Estate of Henry A. Lassiter, Deceased, Paula Ann Masters Lassiter, Administrator, C.T.A v. Commissioner. |
David D. Aughtry and Charles E. Hodges II, for the petitioner. David Delduco and Clinton M. Fried, for the respondent.
Respondent determined a Federal estate tax deficiency in the amount of $14,330,496 for the Estate of Henry A. Lassiter (the estate). Pursuant to Rule 122, the parties have submitted fully stipulated the sole issue of whether, after giving effect to various disclaimers, the estate is entitled to a deduction under section 2056(b)(7) with respect to an interest transferred in trust from Henry A. Lassiter (Mr. Lassiter or decedent) to his surviving spouse. If this legal question is answered in the negative, further proceedings will be required to establish the value of certain property held by Mr. Lassiter at the time of his death.
Unless otherwise indicated, all section references are to sections of the Internal Revenue Code in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.
As this case was submitted fully stipulated, the facts are so found. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference. We set forth below such factual information as is useful in understanding our decision.
Mr. Lassiter was a citizen of the United States and a domiciliary of Clayton County, Georgia, when he was killed in an automobile accident while in Singapore on May 9, 1994. He was 48 years of age. His surviving spouse, Paula Ann Masters Lassiter (Mrs. Lassiter), is the administrator of the estate. At the time the petition in this case was filed, Mrs. Lassiter resided in Morrow, Georgia. The estate has at all relevant times been administered by the Probate Court of Clayton County, Georgia (Probate Court).
In addition to his wife, Mr. Lassiter was also survived by their four daughters: Cathy Lassiter Smith (Cathy), Cindy Elaine Lassiter (Cindy), Christy Lynn Lassiter (Christy), and Cheryl Marie Lassiter (Cheryl). As of the date of their father's death, Cathy, Cindy, Christy, and Cheryl were 25, 23, 19, and 15 years of age, respectively, and Cathy was married to Paul A. Smith.
On May 26, 1994, an order and letters of administration were issued by the Probate Court admitting to probate a will of Mr. Lassiter dated August 7, 1970. The 1970 will, in addition to providing for payment of debts and burial expenses and making specific bequests of personal effects, set forth a testamentary plan establishing two trusts to be funded by the remainder of Mr. Lassiter's probate assets. Item IV of the will specified the amount to be placed in a trust over which Mrs. Lassiter was given a general power of appointment by directing the trustee to:
(1) determine the value of my entire estate passing under this Will, (2) add thereto the value of any and all insurance and other property passing outside of this Will but includable in my estate for Federal Estate Tax purposes, (3) deduct therefrom all debts and expenses of administration allowed as a deduction for Federal Estate Tax purposes but not any estate or inheritance tax, (4) ascertain one-half of the remainder, (5) deduct from such one-half the value of any and all insurance and other property passing to my said wife either outside this Will or under any other item of this Will in such manner as to qualify as a part of the marital deduction under the Federal Estate Tax Law, and (6) the remainder of such one-half shall be the value of the part of my estate bequeathed in this Item.
The trustee of this trust was further told to pay all income therefrom to Mrs. Lassiter, in semiannual or more frequent installments, and was authorized "to encroach on the corpus of the property" as necessary to provide for Mrs. Lassiter's "proper support and comfort".
A second, residuary, trust was then created under Item V of the will for all probate property not otherwise disposed of through the above-described provisions. Pursuant to the governing terms set forth in Item V, the trustee of this trust was instructed as follows:
(b) Said Trustee shall hold and manage said property and shall use such part of the income and/or principal thereof as it may deem necessary to provide for the support in reasonable comfort of my wife, and to provide for the support and education of my children and the descendants of any deceased child of mine. After any child has finished his education, or in normal course should have completed his education, the Trustee shall not be required to make any payment for the support of such child or his descendants unless in the judgment of the Trustee there is ample property to support my wife and educate my children or such child is unable to support himself. To the extent practicable, however, I desire my Trustee in making encroachment for the benefit of my wife to encroach first on the trust created for my wife in Item IV hereof before encroaching on this trust; but this request shall not apply to the extent it would be necessary to sell property which in the opinion of the Trustee should not be sold in order to encroach first on such trust.
(c) My said wife shall have the power at any time and from time to time by instrument in writing signed by her and delivered to the Trustee, to direct the Trustee to turn over any part of the property in this trust to or among such of my descendants, or spouses of such descendants, and in such manner, in trust or otherwise, as my said wife may in such instrument direct or appoint, provided that she shall have no power to appoint said property to herself, to her estate, to her creditors or to the creditors of her estate.
(d) On the death of my said wife, the property then remaining in this trust shall be distributed to or among such of my descendants, and in such manner, in trust or otherwise as my said wife may by her Last Will and Testament direct or appoint, provided that she shall have no power to appoint said property to herself, to her creditors, to her estate or to the creditors of her estate.
(e) Should my said wife fail to exercise her power of appointment as to all of the property in this trust, or should she predecease me, then on my death or on the death of my said wife, whichever last occurs, the property of this trust as to which she fails to exercise such power of appointment shall be divided into as many separate and equal shares as I have children then living and deceased children with descendants then living.
Mr. Lassiter's will appointed First National Bank of Atlanta as the initial trustee of the trusts created therein. Beneficiaries entitled to more than 50 percent of the income from his estate and testamentary trusts were authorized at any time to remove the trustee and to appoint a successor corporate trustee. In such event Item X directed: "Any successor Executor or Trustee appointed as herein provided, or appointed according to law, shall have and may exercise all of the rights, powers and duties herein conferred upon the Executor and Trustee as fully and to the same extent as if such successor had originally been named as Executor or Trustee."
The powers and duties conferred upon the trustee for purposes of administering "every trust" established under the 1970 will were set forth in Item XII. Among the powers so enumerated were the following:
(a) To hold in their discretion any part of the estate to be administered in its form or condition at the time said fiduciaries qualify as the fiduciaries of said estate, * * *
(b) To make and change investments, converting personal property into real property and the reverse whenever they think it advisable * * *; to purchase and hold for investment unproductive and unimproved real estate * * *
* * * * * * * (h) They may apportion or allocate all ordinary and extra dividends and gains from sales of unproductive real estate or from sales of any other part of the corpus and any other receipt or receipts and all expenditures and payments and all losses of income during alterations or improvements of real estate, between income and principal as to them seems fair and just, and any such apportionment or allocation, including the right to amortize or fail to amortize any part of the premium or discount, made in good faith shall be final. * * * They may in general use their discretion in determining the questions as to what receipts and what payments are income and principal, which discretion exercised in good faith shall be final;
After Mr. Lassiter's death and at the request of Mrs. Lassiter and the Lassiter children, First National Bank of Atlanta declined and renounced its right to serve as the named trustee. Accordingly, on February 6, 1995, in her role as administrator of her husband's estate, Mrs. Lassiter filed with the Probate Court three petitions. Therein she requested that she be appointed trustee of the trusts created under Items IV and V of the 1970 will, that authority be granted to the trustee to disclaim trust powers, that a guardian ad litem be appointed to represent the interests of minor daughter Cheryl and all unborn and unascertained beneficiaries of the Item V trust, and that such guardian ad litem be authorized to execute disclaimers of interests in the Item V trust on behalf of the represented beneficiaries. By orders dated February 6, 1995, the Probate Court granted each of these petitions. Jack R. Hancock was designated as the guardian ad litem for the minor, unborn, and unascertained beneficiaries.
Also on February 6, 1995, eight disclaimers were executed and filed with the Probate Court. Six of these instruments, namely, those executed by the three adult Lassiter children, by Cathy's spouse Paul A. Smith, by the guardian ad...
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