Estate of Huntington v. Commissioner

Dana Huntington was married to Elizabeth Huntington. The couple had one daughter together. Dana also had two adult sons from a prior marriage, Charles and Myles Huntington. Dana’s will left $25,000 to each of his three children and a life estate in the rest of the property to Elizabeth. After Elizabeth’s death, the remaining estate would be split among the three children. Later, Dana agreed to execute a new will giving full property rights in his entire estate to Elizabeth. In exchange, Elizabeth would create a will giving each of Dana’s children one-third of whatever was left of the estate at her death. Dana executed a will as agreed, but Elizabeth did not. When Dana died a year later, Charles and Myles sued to enforce Elizabeth’s promise to execute a will giving each son one-third of her estate. The lawsuit settled with Elizabeth agreeing to execute a will that gave each son 20 percent of her estate. However, two weeks later, Elizabeth died intestate, i.e., without any will, which meant that her entire estate went to her daughter. Charles and Myles sued Elizabeth’s estate (plaintiff) to enforce the first lawsuit’s settlement. This second lawsuit was settled for $425,000, which represented the agreed 40 percent of Elizabeth’s estate. On the estate’s tax return, the estate deducted the $425,000 from the gross estate as a payment on a contractual claim against the estate. The federal government (defendant) declared the deduction invalid, and the Tax Court agreed that the claim was not deductible. The estate appealed.