Estate of Sullivan v. Commissioner
| Decision Date | 17 November 1993 |
| Docket Number | Docket No. 12084-91. |
| Citation | 66 T.C.M. 1329 |
| Parties | Estate of Virgil C. Sullivan, Deceased, James W. Peter, Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Respondent, by means of a statutory notice of deficiency, determined a $510,581 Federal estate tax deficiency. The issue for our consideration is whether within the meaning of section 2036(a)1 Virgil C. Sullivan (decedent) retained the possession or enjoyment of, or the right to the income from, transferred trust assets. In resolving these questions we consider: (1) Whether decedent retained a right to use the income of the trust to discharge a legal obligation to support his wife, and (2) whether decedent retained an interest in the trust corpus.
Some of the facts have been stipulated and the stipulation of facts and attached exhibits are incorporated by this reference.
Virgil C. Sullivan, a resident of the State of Minnesota, died on December 20, 1986, survived by his widow, Christine Sullivan (Christine), three sons from his prior marriage, and three grandchildren. At the time of his death decedent was 82 years of age and Christine was 79 years of age. James W. Peter, the personal representative of the Estate of Virgil C. Sullivan, resided in Minneapolis, Minnesota, at the time the petition in this case was filed.
Decedent's first wife had been sick for several years as a result of a long and debilitating illness. After his first wife's death, decedent and Christine were married. At the time of her marriage to decedent Christine was 60 years of age and had not previously been married. Christine has no children of her own and has little or no relationship with decedent's three sons, none of whom live in close proximity to her. Christine has two sisters who live in Washington State and several nieces and nephews who also live in the Western United States.
Decedent was a knowledgeable and successful investment counselor having served as the chief financial officer of IDS and associated mutual funds from 1954 to 1960. Upon leaving IDS, decedent became a self-employed financial consultant, and among the clients to whom he provided investment advice were two wealthy and prominent families. In 1964, decedent became a special adviser to the World Bank. In addition to his private consulting practice, decedent served on the board of directors of various profit and nonprofit corporations.
During the entire duration of their marriage, decedent and Christine lived in a three-bedroom apartment in Minneapolis. The apartment rent for 1986 and 1987 was $14,520 and $14,650, respectively. For the period under consideration, decedent and Christine were members of a Minneapolis lunch and social club and a golf club. The lunch and social club expenses were predominantly for decedent's consulting business purposes. After decedent's death, Christine continued to reside in the same apartment, and she did not use the lunch and social club.
The joint living expenses of decedent and Christine for 1986 and the individual living expenses of Christine for 1987, excluding business expenses, estimated tax payment, gifts to charities and family, and professional accounting and legal services, were:
Expenses 1986 Amount 1987 Amount
Rent ....................................................... $14,520 $14,650
Power and telephone ........................................ 1,398 1,350
Housekeeper ................................................ 1,146 1,100
Golf club .................................................. 8,930 3,400
Grocery store .............................................. 359 1,100
Clothes .................................................... 1,060 1,000
Auto expense and insurance ................................. 670 --
Medical .................................................... 5,722 1,100
Theatre .................................................... 115 --
Repairs .................................................... 93 --
Safe deposit ............................................... 25 --
Miscellaneous .............................................. 624 124
Property insurance ......................................... 128 128
Umbrella insurance coverage ................................ 143 --
Cash ....................................................... 5,800 300
Television and furniture ................................... 671 555
Hairdresser ................................................ -- 119
Newspaper .................................................. -- 131
Clothes cleaning ........................................... -- 32
Travel ..................................................... -- 802
_______ _______
Total .................................................. 41,404 25,891
At some point Christine was diagnosed as having Parkinson's disease.2 In the years following decedent's death Christine's physical condition continued to decline and at the time of trial she resided in a nursing home.
Decedent created an irrevocable trust (the Trust) under agreement dated December 29, 1967, by and between decedent as settlor, and decedent and Robert Don (Don) as trustees. Don and decedent were close friends. They had known each other since 1946 when Don, a high school graduate, began work as decedent's assistant at the brokerage firm of Blair & Co. When decedent left Blair & Co. in 1954, Don remained having been made a partner 2 years earlier. In 1968, decedent, who at that time was a member of the board of directors of Pitcairn Co., recommended Don for employment there and Don remained so employed until his 1984 retirement.
Attorney Robert Oelke drafted the Trust document pursuant to the instructions he received from decedent's attorney, Paul Christoferson, a more senior member in Oelke's law firm.
Article I(A) of the Trust provides as follows:
During the lifetime of Christine Sullivan, wife of the Settlor, the Trustees shall pay to said Christine Sullivan the entire net income from the Trust Estate in quarterly or more frequent installments so long as she shall live, and in addition to such payments of net income, the Trustees shall pay to or expend for the benefit of said Christine Sullivan such sum or sums from the principal of the Trust Estate as the Trustees, in the exercise of their discretion, may deem necessary or advisable from time to time to provide for her proper care, support, maintenance and health, taking into consideration her needs and the other sources of financial assistance, if any, which may be or may become available for such purposes.
Article I(B) provides that upon Christine's death all principal and undistributed income is to be distributed in equal shares to decedent's sons or their survivors.
Article II provides:
The Settlor having been fully advised in respect thereto, hereby expressly surrenders all right and power to amend, modify or revoke this trust in whole or in part, and does hereby irrevocably divest himself of all interests of whatever nature in and to any estate therein.
Article III provides in pertinent part:
The Trustees shall have the sole legal and equitable title to all properties at any time held, acquired or received by them under the terms of this agreement, subject to the conditions and provisions hereof.
The Trustees shall have and exercise the exclusive management and control of the Trust Estate, and without limiting the generality of the foregoing, they are vested with the following additional powers and discretions:
* * *
(K) To make payment of any funds by the terms hereof payable to or for the benefit of any minor or person determined by the Trustees to be unable to manage and care for his personal business affairs, at the sole discretion of the Trustees exercised from time to time in any one or more of the following ways: (1) directly for the support, maintenance, education and general welfare of such beneficiary, or (2) to the legal or natural guardian of such beneficiary, or (3) to any relative or friend of such beneficiary who shall have custody and care of the person of such beneficiary, or (4) directly to such beneficiary. * * *
Article IV of the Trust agreement provides that as long as the settlor is a cotrustee he has the exclusive right to exercise the powers and discretions granted to the trustees under the terms of article III. The Trust agreement provides that the Trust is to be construed under the laws of the State of Minnesota.
From the time the Trust was created through decedent's death, Don neither requested nor was provided any documentation indicating how the Trust assets were invested. Don and decedent had conversations regarding investments in general, but did not specifically discuss what investments were actually made. Decedent, with the assistance of professional advisers, handled all administrative matters of the Trust, including purchase and sale of investments, record keeping, and accounting matters. Don did not participate in any of these matters. At no time did Don discuss or question decedent about the amounts that were paid to Christine out of the Trust, nor was he provided with any information or documentation in this regard. From its creation in 1967 through decedent's death, Don did not receive any trust...
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