Acquiescence Recommended in Result Only Where Estate Was Entitled to Refund for Contingent Bequests (AOD-2012-1)

Acquiescence has been recommended in the result only in A. Baer Revocable Trust, DC Neb., 2010-1 USTC ¶60,590. In that case, the court held that the decedent’s estate was entitled to a refund of the estate tax deficiency assessed against the value of certain contingent bequests.

When the decedent died, the majority of his estate passed to a trust for the benefit of his surviving spouse. The terms of the trust provided for certain specific bequests to individuals, which were contingent upon the sale of the decedent’s stock in a private equity company for a profit during the lifetime of the surviving spouse. The decedent’s personal representative transferred the stock to the trust and made a qualified terminable interest property (QTIP) election pursuant to Code Sec. 2056(b)(7). The marital deduction was denied for the value of the contingent bequests.

Because the court found that the contingent bequests were essentially worthless, it concluded that the estate was entitled to a refund for the deficiency related to the contingent bequests. The IRS argued that the court erred as a matter of law because, under Code Sec. 2056(b)(7)(B)(ii)(II) the contingent bequests rendered the value of the stocks ineligible for QTIP treatment. Pursuant to Code Sec. 2056(b)(7)(B)(ii)(II), no person can have the power to appoint any QTIP property to anyone other than the surviving spouse. However, because the court found that the contingent bequests had no value, the court’s error did not impact the outcome of the case.

AOD-2012-1, FINH ¶30,706

Other References:

Code Sec. 2056

CCH Reference – FINH ¶6580.17

Tax Research Consultant

CCH Reference – TRC ESTGIFT: 42,252


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