T.C. Memo. 1999-225
UNITED STATES TAX COURT
ESTATE OF AMBROSINA BLANCHE LOPES, DECEASED, JAMES W.
LOPES, TRUSTEE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5012-98. Filed July 8, 1999.
Paul J. Barulich, for petitioner.
Marion T. Robus, for respondent.
MEMORANDUM OPINION
GERBER, Judge: This case is before the Court on cross-
motions for partial summary judgment under Rule 121.1 Respondent
determined a deficiency of $4,210,985 in the Federal estate tax
1
All section references are to the Internal Revenue Code in
effect as of the date of decedent's death, and all Rule
references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
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of the Estate of Ambrosina Blanche Lopes (decedent). The sole
issue for our consideration is whether fractional ownership
interests in realty held in a survivor's trust and in a qualified
terminal interest property (QTIP) marital trust should be
aggregated in order to determine whether discounts should apply
to those interests. At the time these motions were brought
before us, Estate of Mellinger v. Commissioner, 112 T.C. 26, 33
(1999), was pending before another division of this Court. The
parties agreed that the Estate of Mellinger opinion would likely
be determinative of the remaining issue in this case. All other
issues determined in the deficiency notice have been resolved.
Background
Decedent died on October 1, 1993. At the time of her death,
decedent had undivided interests in 21 separate California ranch
properties. These interests had been held in two trusts, a
survivor's trust and a QTIP marital trust, as established in a
1985 trust agreement between decedent and her husband, Joaquim C.
Lopes (Joaquim). Decedent's son, James W. Lopes (James), also
held undivided interests in some of the ranch properties.
Joaquim predeceased decedent in 1990. At that time, the
properties were allocated between the trusts according to the
agreement. The community property and separate property of
decedent were placed in the survivor's trust, while all of
Joaquim's community property was placed in the marital trust.
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The marital trust allowed for a QTIP election by the trustee
under section 2056. Because the QTIP marital trust met the test
in section 2056(b)(7), respondent allowed a marital deduction in
the Estate of Joaquim Lopes for the value of the property
interests passing into that trust.
After Joaquim's death, decedent made gifts of undivided
interests in properties held in the survivor's trust to James.
James also purchased interests in more of the survivor's trust
properties. Decedent died shortly after the last of these
transfers. Though the validity of the transfers of these
interests was debated at one time, the parties have come to an
agreement about the gross fair market values of a 100-percent
interest in the properties and about which of the fractional
interests in each of the properties are to be included in
decedent's gross estate. The parties also have reached an
agreement as to the percentage amount of the fractional interest
discount to the undivided fair market value of each of the
properties. The parties' Stipulation of Settled Issues contains
the agreed amounts of each adjustment if we decide either to
aggregate the interests for valuation purposes or to value the
properties in each trust separately.
Rule 121(b) provides that a motion for summary judgment
shall be allowed and considered if the pleadings and admissions
show that there is no genuine issue of material fact and that a
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decision may be rendered as a matter of law. See Sundstrand
Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965
(7th Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988).
In this case both parties agree that no issues of material fact
remain in dispute and that a decision may be rendered as a matter
of law. We agree with them. Consequently, the issue herein is
ripe for summary judgment.
Discussion
Section 2031(a) provides that the value of property
described in sections 2033 through 2044 shall be included in a
decedent's gross estate. Under section 2033, all property
beneficially owned by the decedent at the time of death will be
included in the gross estate. Section 2044 includes in the gross
estate the value of all property in which the decedent had a
qualified income interest for life and for which a deduction was
allowed to the estate of a predeceased spouse under section
2056(b)(7) (QTIP). Upon the death of the second spouse, the QTIP
is taxed as part of the second spouse's estate. See sec.
2044(c).
Property includable in the gross estate is generally
included at its fair market value at the time of death. See
secs. 2031-2044. The fair market value is defined as that price
at which the property would change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy
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or sell and both having reasonable knowledge of the relevant
facts. See United States v. Cartwright, 411 U.S. 546, 551
(1973); sec. 20.2031-1(b), Estate Tax Regs.
The issue here is whether the property interests held in the
survivor's trust should be aggregated with the property interests
held by the QTIP marital trust for the purpose of determining the
fair market value of the property passing from decedent. If the
interests are not aggregated, the values will be discounted to
reflect lack of marketability and minority interests. See Estate
of Mellinger v. Commissioner, supra at 33. We have already
rejected the same aggregation argument advanced by respondent, in
Estate of Mellinger and in Estate of Nowell v. Commissioner, T.C.
Memo. 1999-15. We find no factual or legal distinction that
would result in a different conclusion in this case.
In Estate of Mellinger, the decedent died holding stock in
her revocable trust and in a QTIP trust, much like decedent in
this case. See Estate of Mellinger v. Commissioner, supra at 27.
Each of the trusts held shares of stock, which, when combined,
would have represented a controlling block of shares in the
company. See id. The Commissioner argued that the shares should
be aggregated for valuation purposes. This Court, citing the
reasoning of the Fifth Circuit in Estate of Bonner v. United
States, 84 F.3d 196, 198 (5th Cir. 1996), held that the
fractional interests held in QTIP trusts should not be merged
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into 100-percent fee ownership with other fractional interests
owned by an estate. See Estate of Mellinger v. Commissioner, 112
T.C. at 36-37. In Estate of Bonner the court specifically stated
that there was nothing in section 2044 to require the merger of
QTIP assets with other assets. See Estate of Bonner v. United
States, supra at 198. In Estate of Mellinger, it was explained
that nothing in section 2044 nor in the legislative history
indicated that the decedent should be treated as the owner of the
QTIP shares. See Estate of Mellinger v. Commissioner, supra at
36.
This analysis is equally applicable to the facts before us.
Nothing in section 2044 or the accompanying legislative history
indicates that Congress intended that the property that "passes
through" a decedent's estate under section 2044(c) be treated as
if the decedent actually owned that property for purposes of
aggregation. Nor is there any indication that those property
interests should be merged or aggregated with interests in the
same property includable in the decedent's gross estate pursuant
to other Code sections for purposes of determining Federal estate
tax value. Section 2044 provides only that the fair market value
of property in which the decedent had a qualifying income
interest for life should be included in the gross estate. See
sec. 2044(a). Thus, the fractional interests of the survivor's
trust and the QTIP trust should be valued separately.
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Because the parties have resolved all remaining issues and
stipulated the amounts to be included in the gross estate,
An appropriate order and
decision will be entered.