Brown v. United States

Willet Brown expected to die before his wife, Betty Brown. As part of his estate planning, Willet drafted his will to provide that his entire estate be placed in a marital trust. Willet’s wife, Betty, would be the income beneficiary of the trust, and upon her death, the remainder would go to their heirs. Willet expected that Betty’s estate would incur substantial estate taxes upon her death. In order to provide the heirs with the means to pay those taxes, Willet created an insurance trust. The trust was to hold policies on Betty’s life that would pay out enough money to cover any estate taxes. The life-insurance policies would be a taxable gift from Willet and Betty to the insurance trust. Betty and Willet elected, pursuant to statutory law, to be jointly liable for the gift taxes. Because gift taxes paid within three years of a decedent’s death were included in the decedent’s gross estate, and because Betty was more likely than Willet to live at least three more years, the couple wanted Betty, not Willet, to pay the gift taxes. Betty did not have enough money on her own, so Willet made a nontaxable marital gift to Betty of the cash necessary to pay the gift tax, which Betty then paid. Willet, as expected, died within three years of this transaction. Willet’s estate (plaintiff) did not indicate any liability for estate tax on the gift taxes Betty paid. The Internal Revenue Service attributed Betty’s payment of the gift taxes to Willet and issued a deficiency. The estate brought suit in district court and lost. The estate appealed.