Magazine article The CPA Journal

Settlement Agreements: Debts vs. Bequests

Magazine article The CPA Journal

Settlement Agreements: Debts vs. Bequests

Article excerpt

A claim against a decedent's estate, based on an asserted right to inherit, was not deductible in Estate of Elizabeth G. Huntington v. Commissioner, 1993 TC No. 19.

While creditors' claims that are enforceable, personal obligations of a decedent are deductible under IRC Sec. 2053(a)(3), claims founded on a promise or agreement for less than adequate and full consideration are not deductible for estate tax purposes as provided in IRC Sec. 2053(c)(1)(A).

In the instant case, Elizabeth's spouse of 20 years, Dana, had two sons from a prior marriage. A daughter was born to them. Dana first executed a will whereby each of the three children were left $25,000. The remainder of his estate was held in trust for Elizabeth during her life and the remainder, upon her death, was to be distributed equally to the three children.

Approximately 16 months later, in May 1979, Dana revoked his previous will by executing a new one providing that his entire estate be left to Elizabeth outright. He died in April 1980, and in September 1981, his two sons filed a lawsuit alleging that Dana and Elizabeth had made a binding oral agreement to execute reciprocal wills; that Dana had promised to leave hi entire estate to Elizabeth in return for her promise to leave her entire estate to the three children.

On December 10, 1986, a settlement was reached. According to its terms, Elizabeth was to execute a will leaving 20% of her estate to each of her two stepsons. …

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