The Tax Court ruled that an estate was not entitled to a deduction for a settlement payment in a case where an estate faced a will contest and ended the case with a settlement. In this case the estate went through a will contest where a caregiver and various other people submitted a will made subsequent to that of the will benefitting the testatrix’s grandchildren. It was known that this subsequent will was made when the testatrix had Alzheimer’s disease. The estate argued undue influence and the parties settled for an undisclosed amount.
The estate claimed this settlement as a deductible expense. The Court ruled for that such an item is not deductible for estate tax purposes. The court reasoned that the payment was not deductible because it lacked adequate consideration and it matched the intent of the testatrix. The payment in fact, as structured, was a payment of a distributive share not a claim against the estate. To add insult to injury, the court ordered that the value of the life insurance be included in the gross estate because the testatrix had “incidents of ownership” over the insurance policy at the time of her death. It was with this the estate was not entitled to a deduction.
In this case, the decedent had two separate wills. During the litigation phase of the case, it became apparent that the decedent’s intent was to give a large part of her estate to her caregivers for whatever reason. The subsequent will contest and settlement rewarded the care givers with a substantial bequest much to the dismay of her grandchildren. This case is important because it illustrates the vulnerability one experiences during the end of one’s life. It was extremely unprofessional of the caregivers to accept such bequest, but people are people. It is with this that we recommend that family members need to stay well informed of what elders and disable people in their lives are doing. Don’t let your parents become the victims of unscrupulous people.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors