Estate of Sheldon Summers v. Commissioner: Gift Tax Due at Death Not Deductible + Apportionment of Estate Tax Under NJ Law Not Allowed

The Tax Court, in Estate of Sheldon Summers v. Commissioner, 149 T.C. No. 8 (Aug. 22, 2017),  with Judge Halpern writing the opinion, held that an estate was not entitled to deduct the gift tax owed at the time of a decedent’s death for gifts made to the decedent’s nieces, denied the estate summary judgment regarding the amount of the marital deduction, and held that the estate tax could not be apportioned to the nieces under applicable New Jersey law.

The Tax Court Summary of the opinion is as follows:

D made valid gifts to Ns, his nieces, in December 2001 and January 2002. See Estate of Sommers v. Commissioner, T.C. Memo. 2013-8. D died in November 2002. W, D’s surviving spouse, succeeded to property she owned jointly with D, and D’s will bequeathed and devised to W all of his estate remaining after payment of debts and expenses. W succeeded to or was entitled to receive all of the property included in D’s gross estate, within the meaning of I.R.C. sec. 2031(a). In accordance with the agreements governing their gifts from D, Ns paid the gift tax due on those gifts. P has filed three motions for partial summary judgment seeking determinations that (1) the gift tax owed at D’s death on his gifts to Ns is deductible under I.R.C. sec. 2053, (2) the estate is entitled to a marital deduction under I.R.C. sec. 2056 equal to the value of D’s nonprobate property that W received or to which she succeeded that, under applicable State law, was exempt from D’s debts and the expenses of the estate, and (3) any Federal estate tax due must be apportioned to Ns and thus does not reduce the estate’s marital deduction. Ns have filed their own motion for partial summary judgment that none of the estate tax liability can be apportioned to them.

Held: Because the estate’s payment of D’s gift tax liability would have given rise to a claim for reimbursement from Ns under the agreements governing the gifts, the gift tax owed on those gifts at D’s death is not deductible under I.R.C. sec. 2053(a). P’s gift tax motion accordingly will be denied.

Held, further, P’s motion for partial summary judgment regarding the effect of debts and claims on the marital deduction allowed by I.R.C. sec. 2056(a) will be denied because the amount of the allowable deduction turns on the factual question of the extent to which assets otherwise exempt from claims against the estate were used to pay estate debts and expenses.

Held, further, under the New Jersey estate tax apportionment statute, no portion of any estate tax due can be apportioned to Ns. The existing record does not allow for a determination of the effect of the estate tax on the allowable marital deduction. Accordingly, Ns’ estate tax apportionment motion will be granted and P’s will be denied.

See full opinion at Estate of Sheldon C. Sommers, Deceased, Stephan C. Chait, Temporary Administrator, Petitioner, Wendy Sommers, Julie Sommers Neuman and Mary Lee, et al

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

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