T.C. Memo. 1999-406
UNITED STATES TAX COURT
ESTATE OF LUCILLE R. DEVLIN, DECEASED, C. RONALD LAMBERT,
EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8595-98. Filed December 14, 1999.
Clark J. Grant, for petitioner.
Deanna R. Kibler and Albert B. Kerkhove, for respondent.
MEMORANDUM OPINION
WELLS, Judge: Respondent determined a deficiency in
petitioner’s Federal estate tax in the amount of $25,735.95.
After concessions,1 the sole issue for decision is whether
1
Petitioner has agreed to all of the adjustments determined
by respondent in the notice of deficiency except the adjustment
relation to the issue herein decided.
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decedent’s gross estate includes gifts that were authorized by a
State court order issued before decedent’s death but were made
after decedent's death.
The instant case was submitted fully stipulated pursuant to
Rule 122.2 The facts stipulated by the parties are incorporated
herein by reference and are found as facts in the instant case.
C. Ronald Lambert is the executor of the Estate of Lucille
R. Devlin and the son of Lucille Devlin (decedent). At the time
the petition was filed, C. Ronald Lambert resided in Columbus,
Nebraska. When she died, decedent was a resident of Columbus,
Nebraska.
Decedent had another son, Randall T. Lambert, who married
Patricia Lambert and had three children: Cynthia Lambert, Sandra
Lambert, and Randall T. Lambert, Jr. C. Ronald Lambert married
Charlotte K. Lambert and had three children: Mark Lambert,
Kimberly Lambert, and Tiffanie Lambert.
On January 8, 1986, the county court of Platte County,
Nebraska (county court), appointed Randall T. Lambert and C.
Ronald Lambert, as guardians-conservators for decedent pursuant
to Neb. Rev. Stat. sec. 30-2630(2) (Reissue 1995). Randall T.
Lambert died on April 19, 1986. On August 28, 1986, the county
2
Unless otherwise indicated all section references are to the
Internal Revenue Code in effect at the time of decedent’s death,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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court appointed C. Ronald Lambert as sole guardian-conservator
for decedent. During 1991, 1992, 1993, and 1994, C. Ronald
Lambert, as decedent’s guardian-conservator, made applications to
the county court for authority to make certain gifts to
decedent's son, daughters-in-law, and grandchildren. The
applications were granted, and the authorized gifts were made.
During 1995, C. Ronald Lambert, as decedent’s guardian-
conservator, applied to the county court for authority to make
certain gifts. On April 26, 1995, the county court issued an
order (order) authorizing, but not requiring, C. Ronald Lambert
to make gifts in cash in the following amounts to decedent’s
daughter-in-law and grandchildren:
Randal T. Lambert, Jr. $10,000
Sandra Lambert 10,000
Cynthia Lambert 10,000
Mark Lambert 6,666
Kim Lambert 6,666
Tiffanie Lambert 6,666
Patricia Lambert Gulley 10,000
The order also authorized, but did not require, C. Ronald Lambert
to make a gift of real estate having a value of $20,000 to
himself and his wife Charlotte K. Lambert as tenants in common.
Before decedent’s death, C. Ronald Lambert, pursuant to the
order, conveyed the real estate to himself and Charlotte Lambert
as tenants in common.
On October 1, 1995, decedent died. At the time of
decedent's death, her estate possessed insufficient liquid assets
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to make the cash gifts authorized by the order. On October 16,
1995, decedent's estate made the cash distributions authorized by
the order. Decedent's estate's tax return claimed that the gifts
made pursuant to the order, but after decedent's death, were not
includable in decedent's gross estate. In the notice of
deficiency issued by respondent in the instant case, respondent
determined that those gifts were includable in decedent's gross
estate for estate tax purposes.
Section 2001 imposes a tax on the taxable estate of every
decedent who is a citizen or resident of the United States. The
taxable estate is defined as the gross estate less deductions
allowed. See sec. 2051. Section 2033 provides that a decedent’s
gross estate includes “the value of all property to the extent of
the interest therein of decedent at the time of his death.”
In the instant case, we must decide whether the gifts made
to decedent’s daughter-in-law and grandchildren pursuant to the
order, but after decedent's death, are includable in decedent's
gross estate. Respondent argues that such gifts were incomplete
on the date of decedent’s death and, accordingly, should be
included in decedent’s gross estate. Petitioner argues that on
the date that decedent's guardian-conservator conveyed the real
property to C. Ronald Lambert and Charlotte Lambert as tenants in
common, decedent's guardian-conservator breached a fiduciary duty
to the remaining beneficiaries covered by the order. That
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breach, petitioner contends, resulted in a constructive trust on
decedent's property to the extent of the gifts authorized but not
yet made. Accordingly, petitioner argues that, when the
remaining gifts were completed, they related back to the date of
the creation of the constructive trust. Consequently, petitioner
argues that such gifts should not be included in decedent's gross
estate.3 Petitioner bears the burden of proof. See Rule 142.
That the instant case was submitted to the Court fully stipulated
does not relieve petitioner of that burden. King's Court Mobile
Home Park, Inc. v. Commissioner, 98 T.C. 511, 517 (1992).
“State law creates legal interests and rights. The federal
revenue acts designate what interests or rights, so created,
shall be taxed.” Morgan v. Commissioner, 309 U.S. 78, 80 (1940).
Nebraska law provides, that in order for a conveyance to be a
completed intervivos gift, there must be donative intent,
delivery, and acceptance. See Lewis v. Poduska, 481 N.W.2d. 898,
902 (Neb. 1992). Although Nebraska courts have sustained gifts
where delivery was incomplete, they have done so only where it is
clear that the donor took all of the necessary steps to complete
the gift and the possibility that completion of the gift might
fail was in the hands of another party. See Rorabaugh v. Garvis,
3
Although petitioner claimed on the estate tax return a
deduction for the gifts made pursuant to the order, petitioner
has conceded by stipulation that sec. 2053 does not support the
deduction of those gifts from the gross estate.
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252 N.W.2d 161 (Neb. 1977) (gift completed before the donor’s
death even though the bank did not complete the transfer of
funds, because the donor had done all that was in her power to
effectuate the gift).
For Federal gift tax purposes, a transfer of property is
considered complete only to the extent that “the donor has so
parted with dominion and control as to leave in him no power to
change its disposition, whether for his own benefit or for the
benefit of another”. Sec. 25.2511-2(b), Gift Tax Regs. To
evaluate whether a gift has been completed, we look to the
“objective facts of the transfer and the circumstances under
which it [the gift] is made”. Sec. 25.2511-1(g)(1), Gift Tax
Regs.
In the instant case, there is no indication that any steps
were taken toward delivery of the gifts or the cessation of
dominion and control over the property that was the subject of
the claimed gifts. With the exception of conveying the real
estate to C. Ronald Lambert and his wife, decedent's guardian-
conservator took no steps to effect delivery of the other gifts
authorized by the order. Indeed, immediately prior to the date
of decedent’s death, she had insufficient liquid assets to pay
the authorized cash gifts. Petitioner has not shown that
decedent's guardian-conservator took any steps to make the cash
gifts authorized, but not required, by the order. Accordingly,
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we find that, pursuant to Nebraska law, petitioner has not shown
that the gifts made after decedent's death were complete on the
date of decedent’s death.
As to petitioner's argument that gifts authorized by the
order were completed when decedent's guardian-conservator
conveyed the real estate to C. Ronald Lambert and Charlotte
Lambert, we disagree. Neb. Rev. Stat. sec. 30-2646 (Reissue
1995) provides “In the exercise of his powers, a conservator is
to act as a fiduciary and shall observe the standards of care
applicable to trustees as described by section 30-2813".4
Acknowledging that the Nebraska Supreme Court has not addressed
the specific situation presented in the instant case, petitioner
relies on White v. United States, 881 F. Supp. 688 (D. Mass.
1995). In that case, a grantor created a trust which provided
for distributions to the beneficiaries immediately after the
first day of each successive year. See id. at 690. The trustees
failed to make the required distributions for a number of years
prior to the grantor’s death (missed distributions). See id.
4
Neb. Rev. Stat. sec. 30-2813 (Reissue 1995) in turn
provides:
Except as otherwise provided by the terms of the trust,
the trustee shall observe the standards in dealing with
the trust assets that would be observed by a prudent
man dealing with the property of another, and if the
trustee has special skills, or is named trustee on the
basis of representations of special skills or
expertise, he is under a duty to use those skills.
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After the grantor’s death the trustees made the missed
distributions. See id. The U.S. District Court for the District
of Massachusetts held that the missed distributions were
completed gifts. See id. at 693. The District Court explained:
The language of the trust required the trustees to make
the distributions on the first of the year as to each
year’s distribution. Once this date passed, [the
grantor] had transferred her control over the amount of
the distribution. Otherwise stated, [the grantor’s]
power lapsed on the first of the year with respect to
the distributions at issue. [The grantor] could not
have canceled or amended the amount of a missed
distribution which, under the mandatory language of the
trust, became binding once the date for distribution
passed. * * * [Id.]
The facts of the instant case are distinguishable from the facts
of White. The language of the order does not require the gifts
to be made. Nebraska law provided that, after a determination of
incompetency, the court, either directly or through a
conservator, can exercise all powers over the estate and affairs
of the incompetent, including the power to make gifts. See Neb.
Rev. Stat. sec. 30-2637(3) (Reissue 1995). That statute,
however, requires that a conservator obtain court approval before
making any gifts out of the incompetent’s estate. See Neb. Rev.
Stat. sec. 30-2654(b) (Reissue 1995).
Accordingly, after the issuance of the order, it was within
the power of decedent's guardian-conservator to make the
enumerated gifts, but he was not required to do so. Decedent,
pursuant to Nebraska law, could have challenged that order prior
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to her death. See Neb. Rev. Stat. sec. 30-2637(5). Moreover,
petitioner has not shown that decedent's guardian-conservator
could not have petitioned the county court for permission to
amend or set aside its order. Additionally, petitioner has not
shown that pursuant to Nebraska law, the order vested in the
donees any enforceable right to the gifts.
In contrast to White v. United States, supra, we think that
the reasoning embodied in City Bank Farmers Trust Co. v. Hoey, 23
F. Supp. 831 (S.D.N.Y. 1938), affd. 101 F.2d 9 (2d Cir. 1939),
more aptly applies to the facts of the instant case. In City
Bank Farmers Trust Co., the court issued an order authorizing
certain gifts to be made out of the estate of an incompetent.
See id. at 832. After the order had been issued but before the
gifts were made, Congress enacted gift tax provisions of the
Revenue Act of 1932, ch. 209, 47 Stat. 169. See id. The U.S.
District Court for the Southern District of New York held that
the gifts were not complete until their delivery. See id. at
833-834. Because the gifts were delivered after the enactment of
the gift tax, a gift tax was due on the gifts. See id. The
District Court explained:
Where the gift is one made out of an incompetent’s
estate by court decree, the gift is not complete until
delivery of the thing or money to the donee. The
decree by itself does not pass title or give the donee
anything. As to any money directed to be paid the
court may revoke the order at any time prior to actual
payment. What happens in such a case is that the
court, acting for the incompetent donor, gives a
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direction to the committee, its bailiff, to deliver
property or pay money to the donee. It is precisely as
if a donor in his right mind tells his agent in
possession of his money to pay a specified sum to the
donee. There is no gift until the money is turned
over. [Id. at 833.]
Finally, we disagree that, pursuant to Nebraska law, the
date that the gifts were completed should be related back to the
date that decedent's guardian-conservator conveyed the real
property to C. Ronald Lambert and Charlotte Lambert as tenants in
common. The Nebraska Supreme Court has defined a constructive
trust as:
“a relationship with respect to property subjecting the
person by whom the title to the property is held to an
equitable duty to convey it to another on the ground
that his acquisition or retention of the property is
wrongful and that he would be unjustly enriched if he
were permitted to retain the property. * * * [Fleury
v. Chrisman, 264 N.W.2d 839, 842 (Neb. 1978), quoting
Box v. Box, 21 N.W.2d 868, 869 (Neb. 1946); emphasis
supplied.]
We read Fleury as providing a constructive trust in the
property conveyed, not property the transferee has not received,
i.e., in the instant case, decedent's other property that had not
been conveyed. Moreover, we are not convinced, based on the
record in the instant case, that C. Ronald Lambert, as decedent's
guardian-conservator, wrongfully conveyed the real property to
himself and his wife. Nonetheless, assuming arguendo that C.
Ronald Lambert was unjustly enriched by that conveyance, the
proper remedy would have been to reconvey the transferred real
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property back to decedent’s estate. See Mischke v. Mischke, 530
N.W.2d 235 (Neb. 1995) (the court required, under theory of
constructive trust, that a brother who improperly conveyed
decedent's property to himself, under power of attorney, at a
time when decedent was alive but incapacitated, must reconvey the
property to decedent's estate), affd. after remand 571 N.W.2d 248
(Neb. 1997). Petitioner has not cited, nor have we found, any
authority for the proposition that the Nebraska Supreme Court,
faced with the facts of the instant case, would compel C. Ronald
Lambert, as guardian-conservator of decedent’s estate, to
complete the remaining gifts authorized, but not required, by the
order. Accordingly, we hold that petitioner has not shown that
the gifts made after decedent's death should relate back to the
date prior to decedent's death that decedent's guardian-
conservator conveyed the real property to C. Ronald Lambert and
his wife.
Based on the foregoing, we hold that the gifts authorized by
the order but made after decedent’s death must be included in
decedent’s gross estate for estate tax purposes.
To reflect the foregoing and the concessions of the parties,
Decision will be entered
under Rule 155.