Estate of Cardeza v. United States

Charlotte Cardeza established a trust for the benefit of her only son. The trust indicated that if Cardeza survived all her children and their issue, Cardeza would receive the trust income for life and dispose of the trust principal in her will. Cardeza died when she was 85 years old. At that time, her son was 64, was married to a woman who was 59 years old and had no children. Indications were that Cardeza’s son, at the time of her death, still had the ability to father a child. At issue in this case was the question of whether Cardeza’s reversionary interest had a value greater than 5 percent of the value of the trust corpus. If it did not, then the interest did not have to be declared in her gross estate, pursuant to the language of 26 U.S.C. § 811(c)(2) [Editor’s Note: now 26 U.S.C. § 2037]. If the value was more than 5 percent of the trust corpus, then that value did have to be included in her gross estate. Cardeza’s estate (plaintiff) sued the government (defendant) on this question. While the taxpayer was allocated the burden of proof on these matters, this meant only that the taxpayer carried the burden of nonpersuasion and had to prevail by a preponderance of the evidence. Prior caselaw indicated that if the value of a contingent remainder could not be ascertained, it would be calculated as zero. The government argued that many improvements in actuarial data meant that the value of the remainder could be calculated. Cardeza’s estate disagreed, noting that the nature of the trust gave Cardeza’s son a powerful incentive to produce progeny, that this incentive could induce him to remarry, and that calculating actuarial odds on those sorts of questions was not legitimately possible. The government produced an affidavit from an actuary that assumed that Cardeza’s son would not end his marriage except by his or his wife’s death.