Harold Williamson

After Buell's death , counsel for the Buell descendants continued these discussions with attorneys representing Harold Williamson individually and in his capacities as Personal Representative of the Estate , Trustee of the Trusts , President of the BDC , and Executive Director and Trustee of the Foundation.These discussions continued for approximately eighteen months.

The negotiations culminated in a settlement agreement dated July 29 , 1991.The agreement stated that it was entered into to save both sides the costs of litigation.It was executed by all of the Buell descendants , the Foundation , the BDC , and Williamson individually and in his capacities as personal representative of the Estate and as trustee of the Buell Trust and of the Cherry Hills Trust.It dissolved the Family Trust and passed its assets to the Buell Trust.
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It also provided that the Buell Trust , on behalf of itself , the Estate , Trusts , BDC , and Foundation , would pay $ 2 , 270 , 000 to the Buell descendants , App. at 224 ¶ 2 , who agreed to release all claims against the Estate , Williamson , the Trusts , the Foundation , and the BDC.

The agreement listed eight of the Buell descendants' claims specifically : ( 1 ) detrimental reliance on Buell's promises of support ; ( 2 ) misrepresentation by Buell concerning his intentions to provide for his descendants ; ( 3 ) Buell's breach of contractual agreements made with his descendants to provide for them ; ( 4 ) Buell's mistake of fact in disposing of his property ; ( 5 ) interference by [ c ] ertain Trustees or other representatives of the Foundation with Buell's efforts to provide for his descendants through his will , the Trusts , or inter vivos transfers ; ( 6 ) exertion of influence by [ t ] he Trustee , trustees and/or other representatives of the Foundation , acting in their capacity as officers , directors , or other representatives of BDC to cause Buell to direct BDC assets to the Trusts and the Foundation instead of to his descendants ; ( 7 ) Buell's lack of testamentary capacity and lack of capacity to create trusts ; ( 8 ) violations by Buell of a divorce decree under which he was required t.provide for his grandchildren.App. at 222-23.Williamson and certain of the descendants later stated in depositions that both sides entered into the agreement primarily to avoid the litigation of tort claims of interference with inheritance , based on ( 5 ) and ( 6 ) above.

Relying on the fact that the Buell Trust , which provided funds for the settlement payment , was a revocable trust includable in Buell's gross estate for federal estate tax purposes , the Estate claimed the settlement payment as a deduction on its tax return dated April 5 , 1991.On audit the Commissioner disallowed the deduction and on February 7 , 1994 , assessed a deficiency of $ 2 , 167 , 080.The Estate paid this amount in full , as well as $ 671 , 964.98 in interest for late payment.It filed a claim with the Internal Revenue Service on April 20 , 1994 , seeking a refund of the deficiency as well as $ 671 , 464.981 in interest.The Commissioner denied the claim , and this suit followed on October 25 , 1994.

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Construing the record in the light most favorable to the Estate , we proceed on the assumption that the settlement payment was made solely to avoid litigating tort claims against Williamson for interference with inheritance.

1. Deduction for Claims Against the Estate

The Estate argues that payments to settle these tort claims are deductible under I.R.C. § 2053 ( a ) ( 3 ) , which permits a deduction from the value of the gross estate for claims against the estate. 2 The United States responds that the settlement payment is not deductible because it is a distribution of a portion of the estate , not the payment of a claim against the estate.Cf. First Nat'l Bank of Amarillo v. United States , 422 F.2d 1385 , 1386 ( 10th Cir. 1970 ) ( interpreting § 2053 and making the same distinction ) ; Estate of Huntington v. Commissioner , 16 F.3d 462 , 467-68 ( 1st Cir. 1994 ) ( same ).Both parties cite Treas.Reg. § 20.2053-4 , which provides in relevant part :.
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To overcome this obstacle , the Estate argues alternatively that Williamson's obligation was in substance Buell's obligation , because Williamson was essentially acting under Buell's authority.Williamson , at the direction of Buell through his repeatedly expressed desire to exclude his descendants , influenced Buell not to succumb to a change of heart.
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It reasons further that Williamson would have been sued as a trustee of the Buell Trust , and that the Trust would have had to indemnify him.This right of indemnification from a revocable trust , it argues , made Williamson's tort liability a personal obligation [ ] of the decedent existing at the time of his death..

This is an unusual argument for an unusual situation.Typically an intentional interference with inheritance claim is paid by the tortfeasor , not by an estate or trust.
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For tax purposes , we characterize their claims as claims to inheritances for two reasons : ( 1 ) they were brought by the Buell descendants in their capacity as Buell's heirs at law ; ( 2 ) compensatory damages for these claims would have been measured by the size of the inheritances with which Williamson allegedly interfered.

I.R.C. § 2053 and Treas.Reg. § 20.2053-4 permit deduction for claims based on personal obligations of the decedent , not for payment to an heir claiming as such.The status of the claimant is the determinative factor . . . . Pennsylvania Bank & Trust Co. v. United States , 597 F.2d 382 , 384 ( 3d Cir. 1979 ) ( citations omitted ) ( emphasis added ).Who pays the claim , and in what capacity , is not determinative.Neither is the form of the action.

To effectuate the policy underlying the federal estate tax requires that courts look beneath the surface of transactions to discover the essential character of each transfer.
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Assuming the validity of their tort claims , the Buell descendants would have received substantial inheritances ( not deductible to the Estate ) if not for the tortious conduct of Williamson and others.It makes no difference for estate tax purposes that instead these amounts were distributed only after threatened tort litigation for interference with inheritance.

The fact that the tort claims at issue here did not challenge the validity of Buell's testamentary instruments is irrelevant for tax purposes.The form of the claim , a tort action instead of a will contest , is not determinative ; both require that plaintiffs prove some status-based expectation of inheritance , and both provide a recovery commensurate with that expectation.

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Any tort liability here would have been Williamson's , not the Estate's.Even assuming that a right of indemnification from the Buell Trust would somehow have made Williamson's tort liability a personal obligation of the decedent , nevertheless Williamson was not entitled to such indemnification.

If , as the district court found , Williamson was threatened with suit only in his capacity as trustee of the Foundation , certainly he was not entitled to indemnification from the Buell Trust.Even if , as the Estate argues , Williamson would have been sued as trustee of the Buell Trust , the traditional rule is that an estate cannot be held liable for a tort committed by an executor or trustee.
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Williamson had no business as trustee preventing Buell from modifying the terms of the Trust , advancing the interests of a current beneficiary at the expense of other potential beneficiaries.