Facts

On November 10, 2005, a $35,000 cashier's check was purchased with funds withdrawn from Roger L. Wilson, Sr.'s account as a gift to Roger Wilson, Jr., to settle Wilson, Jr.'s debt for child support. However, the payment was later refused by the Department of Child Support Services and the check was cancelled on March 13, 2006. That same day, the estate issued a $29,000 check to the Department of Child Support Services and a $6,000 check to Mr. Wilson, Jr. Meanwhile, on November 12, 2005, Roger L. Wilson, Sr. created a revocable inter vivios trust called the Roger L. Wilson Revocable Trust. He transferred assets totaling $518,750 to the trust. Diane R. Allison (Allison) and Sonja R. Wilson (Sonja) were the two co-trustees of the trust. Roger L. Wilson died two weeks later on November 27, 2005. On October 6, 2006, Jannise Lazarus and Ashli Tree-Ana Wilson-Bolton (a minor) settled a lawsuit with Allison and Sonja to determine that certain real and personal property of Roger L. Wilson, Sr. belong to them and was not property of the trust. Ashli received $25,000 cash from the trust, among other property, under the settlement agreement. On February 27, 2007, Allison and Sonja filed an estate tax return on behalf of the Estate of Roger L. Wilson, Sr. The estate tax return reported that the total gross estate value at the date of decedent's death was $1,663,242, and the tax liability reported on the estate had been paid in full. On February 9, 2010, Allison and Sonja, acting as the estate's representatives and the trust's trustees, executed a Waiver of Restrictions on Assessments agreeing to an immediate assessment of $96,808 in additional tax on estate. Three documents memorialized the additional assessment the Report of Estate Tax Examination Changes; the Adjustments to Taxable Estate; and the Explanation of Items. The United States of America brought a claim against Allison, Sonja, and the Estate of Roger L. Wilson, Sr. to reduce to judgment unpaid estate taxes by the Estate of Roger L. Wilson, Sr. and impose personal liability for unpaid estate taxes on Allison and Sonja.

PLAINTIFF'S CONTENTIONS: Plaintiff alleged that the $35,000 cashier's check from November 10, 2005 should have been included in defendants' gross taxes. In particular, plaintiff contended that the cashier's check was an unsuccessful gift before decedent's death because it was refused by the recipient, the Department of Child Support Services, and cancelled. Plaintiffs also argued that the $25,000 payment to Ashli was not deductible because it settled her claim that she held title to certain real and personal property and showed that she had a claim to a portion of the estate. Thus, plaintiff maintained that Ashli's lawsuit did not seek to recover a personal obligation of the decedent in tort or contract, but instead sought a declaratory judgment as to the extent of the estate's property and that her lawsuit would not trigger the no-contest clause of the trust.

DEFENDANTS' CONTENTIONS: Defendants alleged that the reissuance of the $35,000 cashier's check notwithstanding the refusal and subsequent cancellation constituted a valid gift that should not have been included in their gross taxes. Defendants maintained that the $25,000 payment to Ashli for the lawsuit was deductible because the basis of the claim was alleged oral agreements between Decedent and Jannise so the claim was for breach of contract.

Result

The parties stipulated to a $228,000 judgment.

Other Information

Previously, the district court had found that the $35,000 cashier's check should be included in the gross estate, the $25,000 settlement payment was not deductible from the gross estate, and defendants were personally liable for unpaid estate taxes up to the value of the trust at decedent's death.