T.C. Memo. 1999-145
UNITED STATES TAX COURT
ESTATE OF LUCILLE M. HORSTMEIER, DECEASED, MARY E. SCOTT,
EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19908-96. Filed April 30, 1999.
David E. Alms, for petitioner.
William T. Derick, for respondent.
MEMORANDUM OPINION
GALE, Judge: Respondent determined a deficiency in Federal
estate tax in the amount of $208,380.
The sole issue for decision1 is whether 50 percent or 100
percent of the value of certain real property referred to as the
1
The parties filed a stipulation of settled issues
resolving the remaining issues.
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Glenview house is included in the taxable estate of Lucille M.
Horstmeier.
Background
Some of the facts have been stipulated and are so found. We
incorporate by this reference the stipulation of facts and the
attached exhibits. At the time the decedent, Lucille M.
Horstmeier (Ms. Horstmeier), died she resided in Glenview,
Illinois. At the time of filing the petition, the executor, Mary
E. Scott (Ms. Scott), resided in Palatine, Illinois.
Ms. Scott and Ms. Horstmeier lived together for almost 20
years before Ms. Horstmeier’s death in 1993. They had met in
December 1972 while Ms. Horstmeier was vacationing in Florida.
At that time, Ms. Horstmeier lived in Skokie, Illinois, with Mae
Glassbrenner, her business partner with whom she owned and
operated an accredited proprietary business college. Ms. Scott,
a Florida native, was a student at St. Petersburg Junior College
in that State. Ms. Scott was 19, and Ms. Horstmeier was 48, when
they met. Ms. Horstmeier and Ms. Scott’s relationship developed,
and in December 1973 or January 1974, they decided to live
together. In March 1974, Ms. Scott left Florida and moved to
Illinois with the intention of attending the University of
Illinois and living with Ms. Horstmeier.
Upon arriving in Illinois, Ms. Scott moved in with a niece
of Ms. Horstmeier. Shortly thereafter, Ms. Scott and Ms.
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Horstmeier decided to look for a condominium to move into
together. In March or April 1974, Ms. Horstmeier purchased a
condominium in Skokie, Illinois, and began living there with Ms.
Scott. Ms. Scott did virtually all of the housework and kept
track of finances and bill paying for the couple. The women
lived in the condominium until February 1975, when it was sold.
Thereafter, they moved into a house in Glenview, Illinois
(the Glenview house). The Glenview house was purchased on
January 31, 1975, for $105,000. All documents with respect to
the Glenview house show that Ms. Horstmeier purchased the
property in her name only. Ms. Horstmeier paid for the Glenview
house with a $50,000 downpayment from her assets and a $55,000
mortgage for which she alone was liable. Ms. Horstmeier deducted
100 percent of the mortgage interest and real estate taxes with
respect to the Glenview house on the tax returns she filed from
1975 through 1992.
At the time the Glenview house was purchased, Ms. Scott did
not have assets to contribute to the purchase price, nor did she
have a regular source of income. Ms. Horstmeier was receiving an
annual salary from the business college of approximately $90,000.
Ms. Scott did virtually all the housework and continued to manage
household finances for the couple. She also performed all
required maintenance. Maintenance work for the house was more
extensive than that required for a condominium, and because Ms.
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Horstmeier had substantial responsibilities as co-owner and
operator of the business college, which left her less time for
such duties, Ms. Scott assumed them. In addition to providing
the services associated with maintaining the Glenview house, Ms.
Scott also assisted Ms. Horstmeier with her work at the business
college without compensation during their first 4 years residing
together.
Ms. Scott was a student and not gainfully employed from 1974
through sometime in 1977. Her parents paid her tuition. She
received money for her support during this period from her
parents and from Ms. Horstmeier. In 1975, Ms. Scott purchased a
Porsche 914 automobile, which required monthly payments of $140,
as well as maintenance.
Sometime in 1977, Ms. Scott began to work at a Wendy’s
franchise and received compensation of an unspecified amount.
She filed her first Federal income tax return with respect to the
1977 tax year.
In January of 1979, Ms. Scott began to receive compensation
for her work at the business college. She began receiving an
hourly wage and eventually received $200 per week.
In the spring of 1979, Ms. Scott and Ms. Horstmeier bought a
20-acre parcel of real property in Wisconsin. They each
contributed to the downpayment of approximately $4,000, and the
property was originally titled in both their names. Ms. Scott
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made all of the 36 monthly mortgage payments, and after the
payments were completed, they decided to title the property
solely in Ms. Scott’s name.
The records of Ms. Scott’s personal checking account from
April 1974 through May 1991, which was her only checking account
during the period, indicate the only checks she wrote for
household expenses before 1979 were modest and sporadic.2
Beginning in 1979, she wrote monthly checks generally exceeding
$100 for electric bills. Beginning in late 1985, she regularly
wrote substantial checks to Ms. Horstmeier which were recorded as
for “bills”.
By the late 1980’s, the business college was experiencing
financial difficulties. From 1988 through 1992, Ms. Horstmeier
periodically lent money to the college. As of March 1992, the
outstanding balance on these loans was $165,325. To fund these
loans, Ms. Horstmeier used proceeds from a home equity credit
line, secured by a second mortgage in the Glenview house. Ms.
Scott was opposed to the use of the home equity loan proceeds for
the business college.
Ms. Horstmeier was diagnosed with pancreatic cancer in March
1992 and was advised by her doctors that her condition was
probably terminal. In May 1992, using the proceeds from her
2
There was one check written to Ms. Horstmeier for
“mortgage” in 1974, before the purchase of the Glenview house.
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pension at the business college, she paid off the home equity
loan secured by the Glenview house.
Ms. Horstmeier died on January 25, 1993. In her will, the
Glenview house is not mentioned specifically; it passed to Ms.
Scott as the residuary beneficiary of a trust to which Ms.
Horstmeier bequeathed her assets not required for estate
administration. Ms. Scott was appointed executor of the estate.
In August 1993, Ms. Scott filed a claim in the Circuit Court of
Cook County, Illinois, County Department, Probate Division. The
claim sought a 50-percent tenancy-in-common interest in the
Glenview house. The claim stated, inter alia, as follows:
a) that the decedent [i.e., Ms. Horstmeier] and
claimant [i.e., Ms. Scott] would share the expenses
regarding residence, including, but not limited to,
mortgage, real estate taxes, capital improvements, day
to day maintenance, and any other improvements agreed
to be made by the parties.
b) that the decedent would require the claimant to
pay $3,000 of $25,000, which represented ½ of the
downpayment made on the purchase of the home, per year,
commencing in the year 1976.
3. That in fact the decedent and claimant have
shared the expenses as agreed * * *, and also decedent,
each year a $3,000 payment was required, required no
payment and made a gift in the amount of $3,000 to
* * * [claimant].
The probate court approved the claim. In doing so, the court did
not pass upon the merits or the underlying facts of the claim,
and no person with an adverse interest to Ms. Scott’s contested
or consented to the claim.
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In August 1993, the Glenview house was sold for $459,000.
On September 10, 1993, Ms. Scott filed the Federal estate tax
return for the estate. On the estate tax return, Ms. Scott
included 50 percent of the value of the Glenview house ($229,500)
in the gross estate and deducted 50 percent of the remaining
mortgage note balance ($14,500). In the notice of deficiency,
respondent determined that 100 percent of the value of the
Glenview house should have been included in the gross estate
($459,000) less selling expenses, and that 100 percent of the
remaining mortgage note balance ($29,000) should have been
deducted.
Discussion
In order to establish that Ms. Horstmeier owned only 50
percent of the Glenview house at the time of her death,
petitioner argues that a resulting trust with respect to one-half
of the property arose in favor of Ms. Scott at the time the house
was purchased. Thus, petitioner argues, under Illinois law Ms.
Scott held the beneficial interest in one-half of the Glenview
house and Ms. Horstmeier held only bare legal title with respect
to that half. Respondent argues that petitioner has failed to
prove the facts necessary to establish the existence of a
resulting trust. We agree with respondent.
To decide whether a resulting trust arose, we apply the law
of the State of Illinois. “[W]hat constitutes an interest in
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property held by a person within a State is a matter of State
law.” Estate of Young v. Commissioner, 110 T.C. 297, 300 (1998)
(citing Fernandez v. Wiener, 326 U.S. 340, 355-357 (1945)). The
issue in this case is a factual one. The parties frame the
question as being whether petitioner has proven that Ms. Scott
satisfied the factual requirements of a resulting trust.3 If so,
a resulting trust arose in her favor, and only one-half the value
of the Glenview house is includable in the taxable estate.
A resulting trust arises when one person furnishes
consideration for property and title is taken in the name of
another person. See Fowley v. Braden, 122 N.E.2d 559, 563 (Ill.
1954). A resulting trust does not depend on contract or
agreement but arises by operation of law to enforce the presumed
intent of the person who furnishes consideration for the
property. See Prassa v. Corcoran, 181 N.E.2d 138, 140 (Ill.
3
We are aware that the Supreme Court of Illinois has, under
certain circumstances, refused to enforce equitable property
rights between unmarried cohabitants on grounds of public policy.
See Hewitt v. Hewitt, 394 N.E.2d 1204 (Ill. 1979). We are also
aware that the Illinois Appellate Court has interpreted Hewitt
to permit the enforcement of equitable property rights between
unmarried cohabitants in some circumstances. See Spafford v.
Coats, 455 N.E.2d 241 (Ill. App. Ct. 1983). But see Ayala v.
Fox, 564 N.E.2d 920 (Ill. App. Ct. 1990). However, in the
instant case, respondent has not raised the issue of whether a
resulting trust should be disallowed under Illinois law on
grounds of public policy. Because petitioner had no occasion to
present pertinent evidence or argument on this question, we do
not consider it and address only the question of whether the
factual requirements for a resulting trust have been satisfied.
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1962); Kane v. Johnson, 73 N.E.2d 321, 324 (Ill. 1947). Unless
there is evidence that a gift was intended from the payor to the
person taking title, it is assumed that the payor intended to
keep the beneficial interests of the property for which he or she
paid. See Prassa v. Corcoran, supra. The fact that the payor
borrowed from the person who took title does not prevent a
resulting trust from arising. See Towle v. Wadsworth, 35 N.E. 73
(Ill. 1893). Nor does the fact that the agreement with respect
to the loan and purchase of the property was oral rather than
written. See id. Parol evidence may be used to prove a
resulting trust. See Ill. Rev. Stat. ch. 59, sec. 9 (1975) (now
740 Ill. Comp. Stat. 80/9 (West 1993)); Kohlhaas v. Smith, 97
N.E.2d 774, 776 (Ill. 1951). A resulting trust arises at the
instant title is taken, or not at all. See Prassa v. Corcoran,
supra.
The burden of proof is on the party seeking to establish a
resulting trust, and, because recorded legal title is being
rebutted, the standard of proof is “clear, convincing and
unmistakable.” In re Estate of Wilson, 410 N.E.2d 23, 27 (Ill.
1980). A resulting trust will not be sustained where the
“evidence is doubtful or capable of reasonable explanation upon
any theory other than the existence of a trust”. Kohlhaas v.
Smith, supra at 776.
Petitioner has offered the claim filed by Ms. Scott and the
decision of the Probate Division of the Circuit Court approving
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the claim. However, the Tax Court “is not conclusively bound by
a State trial court adjudication of property rights or
characterization of property interests when the United States is
not a party to the proceeding.” Estate of Rowan v. Commissioner,
54 T.C. 633, 637 (1970) (citing Commissioner v. Estate of Bosch,
387 U.S. 456 (1967)). Rather, we are to give the decision of the
court “proper regard”. Commissioner v. Estate of Bosch, supra at
465. As the parties have stipulated that the Probate Division of
the Circuit Court “did not pass upon the merits or the underlying
facts of * * * [Ms. Scott’s] claim” in approving it, we give
little weight to that decision.
Intent is critical in establishing a resulting trust. See
In re Estate of Wilson, supra at 27. Although the requisite
intent that the nominal owner is to hold legal title as trustee
for the supplier of consideration must exist when title is taken,
subsequent conduct of the parties is relevant to the extent it
sheds light upon their intent. See Prassa v. Corcoran, supra at
142. Thus, we consider all of the facts and circumstances,
including subsequent conduct, to determine whether petitioner has
shown by clear and convincing evidence an intent that Ms.
Horstmeier hold legal title to one-half of the Glenview house in
trust for Ms. Scott.
Petitioner alleges that Ms. Scott and Ms. Horstmeier agreed
to purchase the Glenview house jointly in equal shares.
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According to petitioner, although Ms. Horstmeier supplied the
downpayment and assumed the mortgage with respect to the purchase
of the house, Ms. Horstmeier and Ms. Scott agreed at the time of
purchase that Ms. Scott would repay her half of the downpayment,
and supply one-half of the monthly mortgage payments and taxes,
by providing all services required for the upkeep of the house.
However, legal title was placed solely in Ms. Horstmeier’s name
because, petitioner contends, as an administrator of a business
college, Ms. Horstmeier did not want questions raised regarding
the nature of her relationship with Ms. Scott, given its same-sex
character and their substantial age difference.
In order to establish a resulting trust, petitioner must
prove by clear and convincing evidence that Ms. Scott provided
consideration for a one-half interest in the Glenview house at
the time of purchase. See American Natl. Bank & Trust Co. v.
United States, 832 F.2d 1032, 1035-1036 (7th Cir. 1987); Hanley
v. Hanley, 152 N.E.2d 879 (Ill. 1958). To prove consideration,
petitioner alleges there was an agreement between Ms. Scott and
Ms. Horstmeier under which Ms. Horstmeier would in effect lend
the consideration for purchase of a one-half interest to Ms.
Scott, with repayment to be made by Ms. Scott through future
services. In Towle v. Wadsworth, supra, the court found that an
oral agreement between Towle and Wadsworth, under which Towle was
to purchase and take title to property but treat half of the
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consideration paid as an advance to Wadsworth, was sufficient to
establish a resulting trust in Wadsworth’s favor for one-half of
the property. Thus, if petitioner establishes the existence of
an agreement between Ms. Scott and Ms. Horstmeier covering Ms.
Scott’s consideration for the Glenview house purchase, it will be
sufficient for us to find a resulting trust in Ms. Scott’s favor.
Ms. Scott testified that she and Ms. Horstmeier had an
agreement at the time of purchase that she could purchase one-
half of the property by providing future services equal in value
to the downpayment (at the rate of $3,000 per year plus interest)
and the monthly payments. Various witnesses who knew the couple,
including Ms. Scott’s mother, testified that it was their
understanding that the two shared everything equally; however,
none of these corroborating witnesses could testify regarding the
specifics of the Glenview house purchase. According to Ms.
Scott’s own testimony, however, Ms. Horstmeier “wasn’t concerned
at all” whether Ms. Scott contributed sufficient services, which
casts some doubt on whether there was a “meeting of the minds”
between the two of them that Ms. Horstmeier had lent to Ms. Scott
one-half of the consideration for purchasing the house, with an
expectation of repayment.
Ms. Scott testified that she would not have entered into the
living arrangement with Ms. Horstmeier without an understanding
that she would contribute her fair share. Her testimony that she
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did all the housework and house maintenance, as well as keeping
track of the couple’s finances, was corroborated by several
witnesses. However, at the time the Glenview house was purchased
and for over 2 years thereafter, Ms. Scott was a student and did
not have gainful employment. She testified that her parents paid
her tuition and that she received money from them and from Ms.
Horstmeier. The record does not establish what proportions came
from each.
Ms. Scott’s purported obligation to repay one-half of the
downpayment, or $25,000, in annual increments of $3,000 plus
interest, would approximate $250 to $300 per month. The monthly
mortgage payment on the Glenview house, which included taxes, was
$675, half of which was $337.50. Thus, before accounting for any
other housing costs, such as utilities and out-of-pocket
maintenance, Ms. Scott’s testimony would indicate that she had
assumed obligations approximating $600 per month.
In 1975, within a year of the house purchase and while still
unemployed, Ms. Scott purchased a Porsche, obligating herself to
monthly payments of $140. The record demonstrates that Ms.
Scott’s living expenses were being paid from 1975 until sometime
in 1977 at least in part by Ms. Horstmeier. There is no record
of any cash contribution toward household expenses by Ms. Scott
until 1979. The record provides some support for substantial
contributions beginning in 1985--i.e., checks to Ms. Horstmeier
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for “bills”--but this is too late to have much bearing on the
parties’ intent at the time of purchase.
The Court accepts Ms. Scott’s testimony, which is
corroborated, that she provided all of the services required to
maintain the household, including significant maintenance work.
Obviously, these services were valuable and benefited Ms.
Horstmeier. Nonetheless, because Ms. Horstmeier was providing
Ms. Scott with money for her living expenses, we believe the
facts in this record are susceptible of another reasonable
explanation; namely, that Ms. Scott’s services in the 1970’s were
repayment for her living expenses, including rent. Ms. Scott has
not shown that the value of her services so exceeded both the
money being given her by Ms. Horstmeier and a fair market rent
that the services must have been repayment for a half interest in
the Glenview house. It is not unreasonable to interpret the
services as reimbursement for living expenses and rent, rather
than repayment of half the acquisition costs for the property.
Certainly this interpretation is consistent with Ms. Horstmeier’s
retention of legal title for nearly 20 years while relinquishing
it in other circumstances; i.e., with respect to the Wisconsin
property. It is also consistent with Ms. Scott’s contention that
she would not have agreed to live with Ms. Horstmeier without
paying her fair share.
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Also problematic for Ms. Scott’s characterization of the
arrangement regarding the Glenview house are certain subsequent
events. In 1979, approximately 4 years after the Glenview house
was purchased, Ms. Scott and Ms. Horstmeier purchased land in
Wisconsin. The property was titled jointly in both names. This
casts some doubt on the rationale offered for avoiding a joint
title for the Glenview house, although concededly Ms. Horstmeier
may have been less concerned about appearances in another State.
In addition, according to her testimony, because Ms. Scott made
all of the payments on the Wisconsin property, Ms. Horstmeier
suggested when all payments had been made that the title be
placed solely in Ms. Scott’s name. This was done. This episode
at least suggests that Ms. Horstmeier and Ms. Scott were prepared
in some circumstances to adjust the legal title to property to
reflect their perceptions of the underlying equities of
ownership.
Much later, starting in the late 1980’s, Ms. Horstmeier took
out a second mortgage on the Glenview house to secure a credit
line and borrowed against it to provide funds to the business
college she co-owned, which was experiencing financial
difficulties. Ms. Scott testified that she was strongly opposed
to the use of the house to secure debt to benefit the college.
This exercise of exclusive control by Ms. Horstmeier casts some
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doubt on whether both parties considered Ms. Scott a co-owner of
the Glenview house.
Finally, the claim filed by Ms. Scott with the Probate
Division of the Illinois Circuit Court states that Ms. Scott was
to pay Ms. Horstmeier $25,000 for one-half of the downpayment on
the Glenview house, at a rate of $3,000 per year starting in
1976, but that Ms. Horstmeier “made a gift in the amount of
$3,000” for each year that payment was required. This
representation to the probate court is in apparent conflict with
Ms. Scott’s testimony in this case, which was that she provided
services in exchange for her half of the downpayment. In our
view, this confusion regarding the downpayment is damaging to
petitioner’s case, given that the standard of proof for a
resulting trust is “clear, convincing and unmistakable.” In re
Estate of Wilson, 410 N.E.2d at 27.
Considering all the facts and circumstances, we do not
believe that petitioner has shown that a resulting trust arose
under Illinois law, which requires clear and convincing evidence
to support such a finding. Indeed, the Illinois Supreme Court
has held that a resulting trust does not arise where the
“evidence is doubtful or capable of reasonable explanation upon
any theory other than the existence of a trust”. Kohlhaas v.
Smith, 97 N.E.2d at 776. The infirmities in petitioner’s theory
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--the confusion regarding the downpayment, Ms. Horstmeier’s
encumbrance of the house despite Ms. Scott’s disapproval, the two
women’s willingness to take joint title to another property when
each contributed to the downpayment--are cumulative and,
considered together, cast doubt on the factual support for a
resulting trust in this case. As noted earlier, another
reasonable explanation of the evidence is available. It would
appear that Ms. Scott’s contribution of services and cash towards
the Glenview house and the couple’s mutual expenses may have
grown over time, although the record remains unclear on this
point. In any event, these later actions have less probative
value regarding the parties’ intentions at the time title was
taken in Ms. Horstmeier’s name. For the foregoing reasons, we
conclude that Ms. Horstmeier’s estate included the entire value
of the Glenview house.
To reflect the foregoing,
Decision will be entered
under Rule 155.