Estate of Farrel v. United States

553 F.2d 637 (1977)

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Estate of Farrel v. United States

United States Court of Claims
553 F.2d 637 (1977)

Facts

Marian Farrel created an irrevocable trust for the benefit of her grandchildren. The trust was governed by two trustees, who were appointed by Farrel and who had complete control of the trust and any distributions from it. Farrel retained only one power over the trust: if a trustee position became vacant, Farrel had the power to appoint anyone as a replacement trustee, including herself. Farrel transferred funds into the trust and paid gift taxes on that transfer. While Farrel was alive, trustee vacancies occurred on two occasions. On both occasions, Farrel chose someone else to be the replacement trustee. After Farrel died, the federal government (defendant) assessed estate taxes against Farrel’s estate (plaintiff) for the value of the trust principal. The government argued that, under 26 U.S.C. § 2036, the trust was part of Farrel’s estate because Farrel had retained the possibility of becoming a trustee who would have total control over the trust and its income. The estate petitioned for a refund of these estate taxes, arguing that the trust principal had been irrevocably gifted out of the estate years before and that Farrel had no actual control over any part of the trust at the time of her death.

Rule of Law

Issue

Holding and Reasoning (Davis, J.)

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