Tag: Inter Vivos Gift

Estate of Kincade v. Commissioner, 69 T.C. 247 (1977): Determining Ownership of Bearer Bonds for Estate Tax Purposes

Estate of Leonard P. Kincade, Deceased, Verl G. Miller, Ralph Berry, and Lilien Kincade, Co-Executors v. Commissioner of Internal Revenue, 69 T. C. 247 (1977)

Bearer bonds found in a safe-deposit box are includable in the decedent’s estate unless clear evidence of ownership by another is established.

Summary

Leonard Kincade purchased bearer bonds through separate brokerage accounts in his name, his wife’s name, and their joint names. Upon his death, these bonds were discovered in a safe-deposit box to which his wife had no access. The Tax Court held that the bonds purchased through his wife’s account were not proven to be hers, and those from the joint account did not establish joint tenancy, thus all bonds were properly included in Kincade’s estate for tax purposes. The court emphasized the necessity of clear evidence of delivery for a valid inter vivos gift under Indiana law.

Facts

Leonard Kincade maintained brokerage accounts in his name, his wife Lilien’s name, and their joint names. After his death, nonregistered bearer bonds were found in a safe-deposit box accessible only to Kincade and his law partners. The bonds were purchased through these accounts, but no evidence showed Lilien contributed to the purchase funds or had access to the box. Kincade’s will left a life estate to Lilien, which did not qualify for the marital deduction.

Procedural History

The IRS determined a deficiency in estate tax, including the value of the bonds in Kincade’s gross estate. The Estate contested this, arguing some bonds were owned by Lilien or jointly. The Tax Court reviewed the case, considering a local court settlement that had assigned ownership to Lilien but found it non-binding.

Issue(s)

1. Whether the bearer bonds purchased through Lilien Kincade’s brokerage account were her sole property and thus not includable in Leonard’s estate?
2. Whether the bearer bonds purchased through the joint brokerage account were owned by Leonard and Lilien as joint tenants with right of survivorship, qualifying for the marital deduction?

Holding

1. No, because the Estate failed to prove that the bonds were delivered to Lilien, a necessary element of a valid inter vivos gift under Indiana law.
2. No, because the Estate failed to show that the bonds were owned as joint tenants with right of survivorship, as there was no evidence of delivery or contribution by Lilien.

Court’s Reasoning

The court applied Indiana law on inter vivos gifts, requiring clear evidence of delivery to establish ownership. It rejected the Estate’s reliance on a local court’s decision based on a settlement, as it was not an independent judicial determination. The court found no evidence that Lilien had access to the safe-deposit box or contributed to the purchase of the bonds, thus failing to establish her ownership or joint tenancy. The court cited Zorich v. Zorich for the principle that delivery must strip the donor of all dominion over the gift, which was not met here. The court also noted that the absence of Lilien’s name on the bonds themselves or any clear indication of her ownership further supported inclusion in the estate.

Practical Implications

This decision underscores the importance of clear evidence of delivery and intent in establishing ownership of assets for estate tax purposes, particularly with bearer bonds. Practitioners should ensure that clients document and complete inter vivos gifts properly to avoid inclusion in the estate. The case also highlights the limited weight given to local court decisions based on settlements rather than judicial determinations. Subsequent cases involving estate tax and asset ownership should consider this ruling when analyzing the sufficiency of evidence for claimed ownership outside the estate.

November 16, 1977
Estate of Sulovich v. Commissioner, 66 T.C. 250 (1976): When Delivery of Savings Account Passbooks Constitutes a Completed Gift

Estate of Semo A. Sulovich, Deceased, Helen Unkovich, Executrix, Petitioner v. Commissioner of Internal Revenue, Respondent, 66 T. C. 250 (1976)

Delivery of savings account passbooks with donative intent constitutes a completed gift, removing the funds from the donor’s taxable estate.

Summary

Semo A. Sulovich created five savings accounts as trustee for his niece and her children in 1959, but in 1965, he delivered the passbooks to his niece, intending to make a gift. The Tax Court held that this act, combined with his clear donative intent, constituted a completed inter vivos gift, thus excluding the accounts from his estate under Sections 2038 and 2036 of the Internal Revenue Code. The decision was based on Texas law, which recognizes that the delivery of a passbook can effect a gift, and the court distinguished this case from others where no such unequivocal act of transfer occurred.

Facts

In 1959, Semo A. Sulovich opened five savings accounts at Dallas Federal Savings & Loan Association in Dallas, Texas, in his name as trustee for his niece, Helen Unkovich, and her four children. The accounts’ signature cards reserved the right for Sulovich to withdraw funds during his lifetime, but he never did so, intending the funds for his niece and her children. In late 1965, Sulovich wrote to his niece, indicating his intent to send her the passbooks, which he did in early 1966. After a burglary in 1967, he mistakenly believed the original passbooks were stolen and sent duplicate passbooks to his niece. At no point did Sulovich request the return of the passbooks, and they remained with his niece until his death in 1969.

Procedural History

The Commissioner of Internal Revenue determined a deficiency in Sulovich’s estate tax, asserting that the savings accounts should be included in his gross estate under Sections 2038 and 2036. The estate contested this, leading to a trial before the U. S. Tax Court. The court found in favor of the estate, ruling that the passbooks’ delivery constituted a completed gift, and thus the accounts were not includable in Sulovich’s estate.

Issue(s)

1. Whether the delivery of the passbooks by Sulovich to his niece in 1966 constituted a completed inter vivos gift, thereby excluding the savings accounts from his gross estate under Section 2038.
2. Whether the savings accounts were includable in Sulovich’s gross estate under Section 2036 due to a retained interest in the property or income.

Holding

1. Yes, because Sulovich’s delivery of the passbooks with clear donative intent constituted a completed gift under Texas law, removing the accounts from his estate under Section 2038.
2. No, because Sulovich did not retain any interest in the property or income after the gift was completed, thus the accounts were not includable under Section 2036.

Court’s Reasoning

The court applied Texas law, which recognizes that the delivery of a passbook can effect a gift if accompanied by donative intent. Sulovich’s actions, including his letter expressing intent to gift the accounts and the actual delivery of the passbooks, demonstrated his intent to make a gift. The court noted that Sulovich never withdrew funds from these accounts, contrasting with his other accounts from which he did withdraw, showing his intent to irrevocably gift the funds. The court distinguished this case from others like Estate of Michael A. Doyle, where no such unequivocal act of transfer occurred. The court also considered the sui generis nature of savings account trusts and the Texas Trust Act’s effect on the revocability of trusts but found it unnecessary to decide whether the delivery of passbooks made the trust irrevocable because a gift had been completed. The decision emphasized the factual basis of such cases, with the court quoting that “the overwhelming weight of authority” supports that delivery of a passbook with donative intent constitutes a gift.

Practical Implications

This decision clarifies that the delivery of a savings account passbook, when accompanied by clear donative intent, can be a sufficient act to complete a gift under Texas law. Practitioners should advise clients to document their intent when making such gifts to avoid disputes upon death. This ruling impacts estate planning by providing a clear method for transferring ownership of savings accounts without formal trust agreements, potentially reducing estate tax liabilities. It also underscores the importance of understanding state-specific laws on gift completion. Subsequent cases have referenced Estate of Sulovich to affirm the principle that delivery of a passbook can constitute a completed gift, influencing estate planning strategies in similar situations.

May 17, 1976
Estate of Elliott v. Commissioner, 57 T.C. 152 (1971): When U.S. Savings Bonds in Co-ownership Form Are Includable in a Decedent’s Gross Estate

Estate of Mae Elliott, Mrs. J. E. Crabtree, a. k. a. Mrs. Mary Kathryn Crabtree, Executrix, et al. , Petitioners v. Commissioner of Internal Revenue, Respondent, 57 T. C. 152 (1971)

U. S. Savings Bonds registered in co-ownership form are includable in the decedent’s gross estate unless surrendered and reissued in accordance with Treasury regulations.

Summary

Mae Elliott purchased U. S. Savings Bonds (Series E) and registered them in co-ownership form with her daughter and grandchildren. She gave the safe-deposit box keys containing the bonds to her daughter but did not surrender or reissue the bonds. The Tax Court held that the bonds’ value must be included in Elliott’s gross estate under Section 2040 of the Internal Revenue Code, as the Treasury regulations prevent inter vivos gifts of co-owned bonds without surrender and reissue. This decision also extended the statute of limitations for estate tax assessments due to the significant omission from the reported gross estate.

Facts

Mae Elliott bought Series E U. S. Savings Bonds with her own funds from November 1949 to October 1959, registering them in co-ownership form with her daughter, Kathryn, and her grandchildren, Elliott and Elaine. The bonds were stored in a safe-deposit box rented solely in Elliott’s name. On August 23, 1956, Elliott gave the safe-deposit box keys to Kathryn and noted in her diary that the bonds belonged to Kathryn, Elliott, and Elaine. Elliott never entered the box after this date, but she retained the legal right to access it until her death on July 7, 1962. The bonds, valued at $95,105. 60, were not included in Elliott’s estate tax return, which reported a gross estate of $156,685. 73.

Procedural History

The Commissioner of Internal Revenue determined a Federal estate tax deficiency of $79,266. 31 against Elliott’s estate. The estate, along with Kathryn, Elliott, and Elaine as transferees, filed petitions with the U. S. Tax Court to contest this deficiency. The Tax Court consolidated these cases and ruled in favor of the Commissioner.

Issue(s)

1. Whether the value of U. S. Savings Bonds registered in co-ownership form is includable in the decedent’s gross estate under Section 2040 of the Internal Revenue Code.
2. Whether the decedent made valid inter vivos gifts of the bonds under Texas law.
3. Whether the statute of limitations bars the assessment of the estate tax deficiency.

Holding

1. Yes, because the Treasury regulations require surrender and reissue of the bonds for a valid inter vivos gift, which did not occur, the bonds’ value is includable in the decedent’s gross estate.
2. No, because under Texas law, Elliott did not divest herself of all dominion and control over the bonds, failing to meet the requirements for a valid inter vivos gift.
3. No, because the omission of the bonds’ value, exceeding 25% of the reported gross estate, extended the statute of limitations for assessment to six years, which had not expired.

Court’s Reasoning

The court applied Treasury regulations, specifically 31 C. F. R. 315, which state that U. S. Savings Bonds are non-transferable and payable only to registered owners. The court rejected the argument that a valid gift could be made without surrendering and reissuing the bonds, emphasizing the importance of the Federal contract governing bond ownership. The court cited Estate of Curry v. United States as supporting this view, arguing for uniformity and predictability in bond ownership rules. The court also found that under Texas law, Elliott’s actions did not constitute a valid inter vivos gift due to lack of unconditional delivery and retention of access to the bonds. The court’s decision was further supported by the significant omission of the bonds’ value from the estate tax return, justifying the extension of the statute of limitations.

Practical Implications

This decision clarifies that U. S. Savings Bonds registered in co-ownership form must be surrendered and reissued to effectuate an inter vivos gift, impacting estate planning strategies involving such bonds. Attorneys should advise clients to comply with Treasury regulations to avoid inclusion of bond values in the decedent’s estate. The ruling also serves as a reminder of the importance of accurately reporting assets in estate tax returns to avoid extended statute of limitations for assessments. Subsequent cases have followed this precedent, reinforcing the requirement for formal surrender and reissue of co-owned bonds for gift purposes.

October 28, 1971
Estate of Frank v. Commissioner, 1956 WL 614 (T.C. 1956): Completed Gift Requires Delivery and Acceptance

Estate of Frank v. Commissioner, 1956 WL 614 (T.C. 1956)

A valid inter vivos gift requires not only the intent to donate and execution of a deed but also actual or constructive delivery to and acceptance by the donee, evidencing a relinquishment of dominion and control by the donor.

Summary

The Tax Court held that real property deeds executed by the decedent in favor of his grandchildren were includible in his gross estate because the gifts were never completed inter vivos. Despite executing and recording the deeds, the decedent retained control and enjoyment of the properties, collecting income, paying expenses, and reporting these activities on his tax returns. The grandchildren were unaware of the deeds. The court found a lack of delivery and acceptance necessary to complete the gifts, thus the properties remained part of the decedent’s estate at the time of his death.

Facts

The decedent executed fee simple deeds for nine parcels of real property in favor of his grandchildren in 1938 and recorded them. The grandchildren were unaware of these deeds at the time. The decedent continued to collect income from the properties, use the income for his own purposes, report the income on his tax returns, make repairs to the properties, and take deductions for those repairs and depreciation. The grandchildren were not informed of the deeds or the alleged gifts during the decedent’s lifetime.

Procedural History

The Commissioner of Internal Revenue determined that the value of the real properties should be included in the decedent’s gross estate. The estate petitioned the Tax Court for a redetermination of the deficiency, arguing that the properties had been transferred via completed gifts inter vivos. The Tax Court reviewed the evidence and the relevant law to determine whether a completed gift had occurred.

Issue(s)

Whether the execution and recordation of deeds to real property, without the knowledge or acceptance of the donees and with the donor retaining control and enjoyment of the property, constitutes a completed gift inter vivos sufficient to remove the property from the donor’s gross estate.

Holding

No, because a completed gift inter vivos requires not only the intent to donate and the execution of a deed, but also delivery to and acceptance by the donee, coupled with the relinquishment of dominion and control by the donor, which did not occur in this case.

Court’s Reasoning

The court relied on the established requirements for a valid gift inter vivos, citing Edson v. Lucas, which requires: (1) a competent donor; (2) a clear intention to make a gift; (3) a capable donee; (4) a sufficient transfer to vest legal title; and (5) relinquishment of dominion and control by the donor. The court found that while the decedent executed deeds, he never relinquished control over the properties, as he continued to manage them and receive the income. Furthermore, the donees were unaware of the gifts, meaning there was no acceptance. The court stated, “there can be no effectual delivery to the donees where the grantor expressly instructs the recorder to redeliver the deeds to him; and it is a fair assumption here that decedent in effect gave such instructions, for otherwise the donees would have acquired knowledge of the alleged gifts.” Because the decedent treated the properties as his own until death, the court concluded the gifts were incomplete, and the properties were properly included in the gross estate.

Practical Implications

This case underscores the importance of demonstrating actual delivery and acceptance when attempting to make a gift of property, especially real estate. Merely executing a deed and recording it is insufficient if the donor retains control and the donee is unaware of the transfer. Attorneys advising clients on estate planning should emphasize the need for clear communication of the gift and relinquishment of control to ensure that the gift is considered complete for estate tax purposes. This ruling also highlights that actions speak louder than words. The decedent’s continued management and use of the property directly contradicted any intention to relinquish ownership. Later cases applying this principle scrutinize the donor’s behavior after the purported gift to determine true intent and control.

October 2, 1951