Fabric v. Commissioner
United States Tax Court
83 T.C. 932 (1984)
- Written by Eric Miller, JD
Facts
Five days before undergoing open-heart surgery in September 1975, Mollie Fabric set up an irrevocable trust for the benefit of her sons. The trust documents included an annuity agreement under which the trustee, Cayman National Bank, agreed to pay Fabric $2,378.48 per week for the rest of Fabric’s life, in consideration for which Fabric transferred assets totaling $1,150,000 into the trust. The annuity amount was calculated according to the gift-tax actuarial tables. Although Fabric’s physician estimated that Fabric had at least five years left to live as of late 1975, Fabric died in early 1977. The Internal Revenue Service commissioner (defendant) determined a deficiency on the ground that Fabric had retained a life estate in the transferred assets, thus subjecting that part of Fabric’s estate to the federal estate tax in accordance with Internal Revenue Code § 2036. The estate (plaintiff) challenged this determination in the United States Tax Court, arguing that the transfer had been a valid annuity agreement under which full and adequate consideration had been received, making the estate tax inapplicable.
Rule of Law
Issue
Holding and Reasoning (Sterrett, J.)
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