Thursday, January 6, 2022
Beckett Cantley (Northeastern) & Geoffrey Dietrich (Cantley Dietrich), How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning, 34 Quinnipiac Prob. L.J. 141 (2021):
On April 7, 2020 the U.S. Tax Court ruled in Estate of Moore v. Commissioner, T.C. Memo. 2020-40, that certain deathbed transfers should be includible in the decedent’s estate for United States Federal Estate Tax (“estate tax”) purposes. The court applied Internal Revenue Code (“I.R.C.”) § 2036 to the transfers due to the decedent’s continued interests in the transferred property. The Tax Court stated that I.R.C. § 2036 creates “a general rule that brings back all property that a decedent transfers before he dies, subject to two exceptions.” The first exception is for bona fide sales for full and adequate consideration. The second exception is for “any property that [the decedent] transferred in which he did not keep a right to possession, enjoyment, or rights to the issue of the transferred property.” The Tax Court stated that the first exception depends on the transferor’s motivations, and that the decedent’s actions made it clear there was no bona fide sale. As a result, the Tax Court determined that I.R.C. § 2036(a)(1) applied to the transfer.
Estate of Moore is the latest in a line of cases in which taxpayers made deathbed transfers close to the date of death and the IRS successfully argued that the transferred property is includible in the decedent’s gross estate. In Estate of Bongard v. Commissioner, 124 T.C. 95 (2005), the Tax Court created a three-part test to determine whether I.R.C. § 2036 pulls property back into a decedent’s estate. In Estate of Strangi v. Commissioner, T.C. Memo. 2003-145, aff’d 417 F.3d 468 (5th Cir. 2005), the Tax Court provided additional guidance for how the court interprets I.R.C. § 2036(a)(1). In Estate of Nancy H. Powell v. Commissioner, 148 T.C. No. 18 (2017), the court builds on the rationale established by Strangi, but ultimately invokes I.R.C. § 2036(a)(2) to include the transferred assets in decedent’s gross estate. This article: (1) provides an overview of deathbed transfers case law; (2) describes typical such deathbed transfers; (3) outlines the I.R.C. § 2036 statute; (4) discusses the main seminal cases in the area of deathbed transfers, including Estate of Bongard, Estate of Strangi, Estate of Powell, and Estate of Moore; (5) synthesizes the case law on I.R.C. § 2036 and analyzers policy considerations regarding such law; and (6) concludes with a summary of the article’s findings.