Estate of Rosen v. Commissioner

• Decision Date: 01 June 2006
• Docket Number: Dkt. No. 7575-04.,Dkt. No. 7576-04.
• Parties: Estate of Lillie Rosen, Deceased, Ilene Field And Herbert Silver, Co-Personal Representatives, Petitioner v. Commissioner of Internal Revenue, Respondent.
• Court: U.S. Tax Court

91 T.C.M. 1220

T.C. Memo. 2006-115 Estate of Lillie Rosen, Deceased, Ilene Field And Herbert Silver, Co-Personal Representatives, Petitioner v. Commissioner of Internal Revenue, Respondent.

Dkt. No. 7575-04.

Dkt. No. 7576-04.

United States Tax Court.

June 1, 2006.

Marvin A. Kirsner, Daniel D. Mielnicki, G. Michelle Ferreira, and Jerome M. Hesch, for petitioners.

John T. Lortie, Kenneth A. Hochman, and Jennifer Duval (specially recognized), for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LARO, Judge.

In docket No. 7575-04, the Estate of Lillie Rosen, Deceased, Ilene Field and Herbert Silver, Co-Personal Representatives, petitioned the Court to redetermine respondent's determination of a $1,107,085 deficiency in the Federal estate tax of the Estate of Lillie Rosen (decedent's estate). In docket No. 7576-04, the Estate of Lillie Rosen, Deceased, Donor, Ilene Field and Herbert Silver, Co-Personal Representatives, petitioned the Court to redetermine respondent's determination of a $25,826 deficiency in the 2000 Federal gift tax of Lillie Rosen (decedent). The cases resulting from these petitions were consolidated for purposes of trial, briefing, and opinion.

Following concessions by the parties and a trial of the remaining issues, we decide whether decedent retained the possession or enjoyment of, or the right to the income from, property transferred to the Lillie Rosen Family Limited Partnership (LRFLP) with the result that the property is includable in her gross estate under section 2036(a)(1).¹ We hold she did. Given this holding, we need not and do not consider respondent's other arguments in support of respondent's determination that the property is includable in decedent's gross estate.

FINDINGS OF FACT

1. Preface

Some facts were stipulated, and the stipulated facts are incorporated herein by this reference. Herbert Silver (decedent's son) and Ilene Field (decedent's daughter) (collectively, decedent's children) are copersonal representatives of decedent's estate. When the petitions were filed in these cases, decedent's son resided in Coconut Creek, Florida, and decedent's daughter resided in Wilmette, Illinois.

2. Decedent and Her Family

Decedent was born on November 17, 1907, and she died on July 14, 2000, at the age of 92. Decedent's children are her only children. Decedent's son is married to Greta Silver (decedent's daughter-in-law), and their children are Benita Silver Levin, Alan Silver, and Daniel Silver. Decedent's daughter is married to Gerson Field (decedent's son-in-law), and their children are Andra Kossy and Debra Levens. As of December 5, 2005, decedent's son was 74 years old, decedent's daughter was 70 years old, and they each had been married for 50 years.

3. Practice of Law by Decedent's Son-in-Law and Decedent's Formal Gift-Giving Program

Decedent's son-in-law has practiced as an attorney for more than 50 years, and he has regularly attended seminars on estate planning and the Federal estate tax. Throughout his practice, he has advised decedent on various legal matters including establishing a formal plan to make gifts to her descendants and their spouses (collectively, descendants). Decedent's wealth consisted primarily of stocks, bonds, and cash. Decedent's son-in-law most likely recommended the formal plan of gift giving as a form of estate planning.

In 1979, decedent began the formal gift-giving plan under which she (in her own capacity or apparently after 1994 through her daughter as decedent's attorney-in-fact) generally gave her descendants gifts in each of the ensuing years until her death. Before 1995, decedent and her daughter usually met once a year in Chicago to select any particular stock or bond that would be given to each donee descendant. Decedent's son-in-law kept records detailing these gifts. In 1995 and 1996, decedent (through her daughter as decedent's attorney-in-fact) gave cash to her then 16 descendants as follows:²

                Date of Gift      Donee                         Relationship to Decedent              Gift
                12/31/95          Decedent's son                Son                                $15,000
                

                12/31/95          Decedent's daughter           Daughter                            25,000
                12/31/95          Decedent's son-in-law         Son-in-law                          10,000
                12/31/95          Decedent's daughter-in-law    Daughter-in-law                     10,000
                12/31/95          Alan Silver                   Grandson                            10,000
                12/31/95          Daniel Silver                 Grandson                            10,000
                12/31/95          Andra Kossy                   Granddaughter                       10,000
                12/31/95          Debra Levens                  Granddaughter                       10,000
                12/31/95          Benita Silver Levin           Granddaughter                       10,000
                12/31/95          David Kossy                   Grandson-in-law                     10,000
                12/31/95          Gary Levens                   Grandson-in-law                     10,000
                12/31/95          Marcus Levin                  Great-grandson                      10,000
                12/31/95          Benjamin Silver               Great-grandson                       5,000
                12/31/95          Jacob Silver                  Great-grandson                       5,000
                12/31/95          Rachael Kossy                 Great-granddaughter                 10,000
                12/31/95          Nicole Levens                 Great-granddaughter                 10,000
                1/1/96            Decedent's son                Son                                 15,000
                1/1/96            Decedent's daughter           Daughter                              1-0-
                1/1/96            Decedent's son-in-law         Son-in-law                          10,000
                1/1/96            Decedent's daughter-in-law    Daughter-in-law                     10,000
                1/1/96            Alan Silver                   Grandson                            10,000
                1/1/96            Daniel Silver                 Grandson                            10,000
                1/1/96            Andra Kossy                   Granddaughter                       10,000
                1/1/96            Debra Levens                  Granddaughter                       10,000
                1/1/96            Benita Silver Levin           Granddaughter                       10,000
                1/1/96            David Kossy                   Grandson-in-law                     10,000
                1/1/96            Gary Levens                   Grandson-in-law                     10,000
                1/1/96            Marcus Levin                  Great-grandson                      10,000
                1/1/96            Benjamin Silver               Great-grandson                       5,000
                1/1/96            Jacob Silver                  Great-grandson                       5,000
                1/1/96            Nicole Levens                 Great-granddaughter                 10,000
                1 On Jan. 1, 1996, in lieu of a cash gift, decedent gave her daughter a $25,010 "other gift", the specifics of which we are
                unable to find
                

4. Decedent's Trust

On June 18, 1974, decedent formed a revocable trust known as the Lillie Sachar Rosen Investment Trust, a.k.a. Lillie Investment Trust (Lillie Investment Trust). Decedent was the trustee and settlor of the Lillie Investment Trust, and decedent's children were named in the underlying document (trust document) as successor cotrustees. The trust document stated that decedent would "transfer certain cash and securities to the trustee" and that the "trustee agrees that she will hold the cash and securities and all other property, real and personal, acquired by her as trustee hereunder, including any property acquired under the provisions of settlor's will, upon the trusts hereinafter set forth." The trust document required that all of the trust's income be distributed to (or on behalf of) decedent at least once every 3 months, and it allowed decedent, as trustee, to distribute to herself some or all of the trust's principal. The trust document stated that all principal and undistributed income at the time of decedent's death would be distributed in the following order: (1) To pay certain expenses and claims related to decedent (to the extent that decedent did not have assets outside of the Lillie Investment Trust to pay those amounts); (2) $40,000 to a trust benefiting decedent's mother, if living; (3) $5,000 to each of decedent's living grandchildren; (4) $1,500 to certain charitable organizations; and (5) one-half of any remaining amount in the Lillie Investment Trust to each of decedent's children (or, if deceased, to the benefit of his or her spouse and children). The trust document set forth an extensive list of the duties and powers of the trustee.

The terms of the Lillie Investment Trust were amended three times. First, on January 1, 1981, the terms of the Lillie Investment Trust were amended to state that decedent had changed her residence and domicile from Illinois to Florida effective as of that date. Second, on January 1, 1982, the terms of the Lillie Investment Trust were amended to state that the trustee could buy, sell, or trade securities on margin. Third, on August 23, 1989, the terms of the Lillie Investment Trust were amended upon the advice of decedent's estate planning attorney, Stuart Feldman (Feldman), to restate the terms of the Lillie Investment Trust by revoking all of the then-existing provisions and replacing them with new ones. In relevant part, the new provisions changed the order and amounts of distributions to be made upon decedent's death and stated specifically that decedent's children would serve as successor cotrustees in the event decedent was unable to manage her affairs. The new provisions also stated:

I [decedent] shall be considered to be unable to manage my affairs if I am under a legal disability or by reason of illness or mental or physical disability am unable to give prompt and intelligent consideration to financial matters, and the determination as to my inability at any...