Estate of Bergan v. Commissioner

At age 74, Sarah Bergan transferred an inheritance worth approximately $134,000 to her younger sister, Margaret Goggin. Bergan and Goggin agreed that Bergan was transferring the inheritance to Goggin in exchange for Goggin agreeing to take care of Bergan for the remainder of Bergan’s life. Bergan then lived with Goggin, and Goggin paid at least $6,250 each year for Bergan’s living expenses until Bergan died. After Bergan’s death, the federal government (defendant) determined that Bergan owed either gift tax or estate tax on the $134,000. Under the estate-tax theory, the government argued that Bergan had originally transferred the $134,000 to Goggin to hold in trust, with Bergan retaining a right to the trust’s income for life and Goggin receiving the principal at Bergan’s death. Because this scheme would allow Bergan to keep some control over the $134,000, the amount was part of Bergan’s estate (plaintiff) and subject to estate taxes. Alternatively, under the gift-tax theory, Bergan had originally gifted the $134,000 to Goggin for a promise, which was not monetary consideration. Thus, Bergan owed gift taxes on the transfer. Bergan’s estate petitioned for a determination that the $134,000 had been exchanged for an annuity contract. Under this theory, the estate either owed no taxes on the money or did not owe taxes on the portion of the $134,000 that had been used to buy the annuity contract. At that time, the value of an annuity contract for a 74-year-old woman who made annual payments of $6,250 was approximately $32,500.