Estate of Lute v. U.S., 8:CV97-00118.
| Decision Date | 11 March 1998 |
| Docket Number | No. 8:CV97-00118.,8:CV97-00118. |
| Citation | 19 F.Supp.2d 1047 |
| Parties | ESTATE OF Robert F. LUTE II, by his Personal Representatives, James A. Lane, Kathleen M. Lute and Gene Krab; and the Robert F. Lute II Trust, by his Trustees, James A. Lane, Kathleen M. Lute and Gene Krab, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — District of Nebraska |
R. Kevin O'Donnell, McGinley, Lane Law Firm, Ogallala, NE, for plaintiffs.
Sarabeth Donovan, Assistant United States Attorney, Omaha, NE, Robert D. Metcalfe, U.S. Department of Justice, Tax Division, Washington, DC, for U.S.
This is an estate tax refund suit. The seminal issue is whether a renunciation executed by the decedent's father is a qualified disclaimer as defined in the Internal Revenue Code, 26 U.S.C. § 2518. If it is a qualified disclaimer, then the decedent's entire intestate estate "passed from the decedent to his surviving spouse" and qualifies for the marital deduction set forth in the Internal Revenue Code, 26 U.S.C. § 2056(a).
This case was tried to the Court on February 2 and 3, 1998. At the close of trial, the parties were invited to and have submitted post trial briefs. After careful consideration of the arguments of counsel and the evidence adduced at trial, the Court makes the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a). First, however, the Court must rule on several exhibits received at trial subject to relevancy objections.
I. OBJECTIONS TO EVIDENCE
The Court received the following exhibits at trial subject to relevancy objections. Having reviewed them, the Court rules as follows:
Plaintiff's Exhibit 168(J) — received
Defendant's Exhibit AA — objection sustained
Defendant's Exhibit BB — objection sustained
Defendant's Exhibit BB-1 — objection sustained
Defendant's Exhibit BB-2 — objection sustained
Defendant's Exhibit GG — received
Defendant's Exhibit II — received
Defendant's Exhibit JJ — received
Defendant's Exhibit KK — received
II. FACTS
The parties' numerous stipulated facts are set forth in their entirety in the pretrial order (Filing No. 31). The Court has incorporated several of the stipulations verbatim in the following findings of fact.
Members of the Lute family have been ranching in the Ogallala, Nebraska, area for nearly 100 years. Fred and Bessie Lute operated the Lute ranches in Keith and Arthur Counties on an association or contract basis. They provided land and half of the cattle, and tenants would supply labor and the other half of the cattle. For about seventy or eighty years, the tenants had been Kramers and Swansons.
Fred and Bessie Lute had three children, Robert F. Lute, Rose Sarah Lute, and Lula Lute. Rose Sarah and Lula Lute never married and had no children. Rose Sarah died in 1990 and Lula died in 1988. Robert F. Lute married Rose O'Brien Lute who died in 1981. They had one child, Robert F. Lute II, who married Kathleen M. Lute in 1987.
On July 1, 1988, Robert F. Lute, hereinafter Lute Sr., and his son Robert F. Lute II, hereinafter Lute II, executed a partnership agreement to operate the Lute family ranch and cattle business. Profits and losses were shared equally between the partners. The Partnership Agreement provided in part:
Upon the death of a PARTNER, the Partnership business shall be continued by the surviving PARTNER for a period of three (3) years or for such time as is reasonably required by the surviving PARTNER to settle up accounts and dissolve the Partnership.
The partnership agreement also gave the surviving partner the option to purchase the deceased partner's interest.
Attorney James A. Lane first met Lute Sr. in the early 1940's. Over the years, Lute Sr. had engaged the services of Mr. Lane for business and personal reasons. Mr. Lane assisted Lute Sr. with estate planning. For instance, with the intent of keeping property out of Lute Sr.'s estate, on March 28, 1991, Mr. Lane helped Lute Sr. execute a renunciation exactly like the one at issue in this case whereby Lute Sr. renounced his intestate interest in his sister Rose Sarah Lute's estate. As a result, the property passed to Lute II. Over the years, also with the intent of reducing the value of his estate, Lute Sr. made several gifts to Lute II, particularly of land in Arthur County. By 1992, Lute Sr. had used his entire unified credit and paid gift tax on gifts to his son.
In April of 1991, Mr. Lane created a will for Lute II. Under the terms of the will, Lute II's entire estate would be placed in the "Robert F. Lute II Trust" for the benefit of his wife for her life. Kathleen M. Lute, Gene Krab, and Mr. Lane were to serve as cotrustees. After executing the will on April 24, 1991, the decedent took the original and left a copy with Mr. Lane's law office.
Sometime after the first will was executed, Lute II and Mr. Lane agreed that a second will should be prepared because the original will did not specify that the income from the trust should be paid to Kathleen M. Lute on an annual basis. Mr. Lane testified that Lute II was to revoke the first will. Mr. Lane also testified that he presumed Lute II knew how to revoke a will because Lute II had attended law school.
Before a second will was prepared, the decedent, Robert F. Lute II, a resident of Keith County, Nebraska, unexpectedly died on September 3, 1992. The decedent was born on January 19, 1944, and was forty-eight (48) years old at the time of his death. (Jt.Stip.2). The decedent, who died without issue, was survived by his father, Robert F. Lute, and his wife, Kathleen M. Lute. (Jt.Stip.3).
After Lute II's death, the original of the April 24, 1991, will could not be located. Mr. Lane testified that he concluded that Lute II had revoked the will and consequently died intestate. A copy of the will was not submitted for probate.
Lute Sr. was decimated by the news of his son's death. Mr. Lane testified that he spoke with Lute Sr. about keeping the property he was to inherit under Nebraska's laws of intestate succession out of his estate. Mr. Lane recalls Lute Sr. saying that he wanted his son's property to go to Kathleen M. Lute, and Gene Krab recalls Lute Sr. saying that "his son's property will go to Kathy or be Kathy's." Mr. Lane testified that he suggested that Lute Sr. execute a renunciation as he had done in Rose Sarah Lute's estate. Mr. Lane further testified that Lute Sr. then requested that Mr. Lane prepare a renunciation which Lute Sr. executed on September 16, 1992. The renunciation provided in part:
The undersigned further declares that this Renunciation is an irrevocable and unqualified refusal to accept in whole or in part any and all interest in the estate of the decedent.
The undersigned further states that this Renunciation is made under the provisions of the Nebraska Probate Code Section 30-2352 and under the provisions of the Internal Revenue Code Section 2518. The undersigned has not accepted any interest or benefit in, dominion over, and has not assigned, transferred nor waived the right to renounce the disclaimed property nor has such property been sold or disposed of pursuant to judicial process.
Mr. Lane testified that when Lute Sr. executed the Renunciation, Lute Sr. knew the value of the estate he was to inherit and knew what he was renouncing. Mr. Lane testified that before Lute Sr. executed the Renunciation, he, Mr. Lane, did not have any discussions with Kathleen M. Lute about it, and that she was never present when Mr. Lane and Lute Sr. discussed it. Kathleen M. Lute testified that she first saw the Renunciation when she signed and accepted it on September 16th. She also testified that prior to signing the Renunciation, she had not discussed it with anyone, and in particular she testified that Lute Sr. never discussed business with women and that she had never discussed the Renunciation with him.
Mr. Lane testified that, after the Renunciation was executed on September 16th, he spoke separately with Lute Sr. and Kathleen M. Lute. Lute Sr. advised Mr. Lane that he wanted to trade land in Arthur County for land in Keith County with Kathleen M. Lute and he wanted to get out of operating the ranch in Arthur County as he was prevented from traveling because of his age. He was approximately eighty-five (85) years old at the time. Further, Lute Sr. knew there were problems in Arthur County. The tenants were not maintaining the required number of cattle and were not paying their share of the expenses. Lute II had been trying to resolve these problems when he died.
Kathleen M. Lute advised Mr. Lane that she wanted to carry out her deceased husband's wishes as expressed in his April 24, 1991, Last Will and Testament. Both Mr. Lane and Kathleen M. Lute testified that it was her idea to place all of the property she inherited into the Robert F. Lute II Trust, and it was a voluntary act on her part.
Based on these discussions, Mr. Lane prepared, or had someone in his firm prepare, an agreement which the parties signed on September 18th and 22nd (Plaintiffs' Exhibit 103 and Defendant's Exhibit C). The Agreement provides that "it is entered into this 22nd day of September, 1992."
Kathleen M. Lute testified that, before signing the Agreement on the 18th, she never spoke with Lute Sr. about its contents. She read the Agreement and understood it to mean that the partnership between Lute Sr. and Lute II was dissolved and that the ranch property in Arthur County was to be operated as it had been in the past. She understood that she was transferring all of the estate into trust. As to paragraph 6 of the Agreement, Kathleen M. Lute understood that Lute Sr. wanted out of Arthur County, and she was going to trade land in Keith County for land he owned in Arthur County.
Although Paragraph 4 of the Agreement mentions an attached trust agreement, ...
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