In the Estate of Nancy H. Powell, 148 T.C. No. 18, filed May 18, 2017, the Tax Court held that limited partnership interests were includible in decedents estate. The abstract is as follows:
On August 8, 2008, D’s son, J, acting on her behalf, transferred cash and securities to LP, a limited partnership, in exchange for a 99% limited partner interest. LP’s partnership agreement allowed for the entity’s dissolution with the written consent of all partners. Also on August 8, 2008, J, purportedly acting under a power of attorney, transferred D’s LP interest to T, a charitable lead annuity trust, the terms of which provided an annuity to a charitable organization for the rest of D’s life. Upon D’s death, T’s corpus was to be divided equally between D’s two sons. D died on August 15, 2008.
Held: D’s ability, acting with LP’s other partners, to dissolve the partnership was a right “to designate the persons who shall possess or enjoy” the cash and securities transferred to LP “or the income therefrom”, within the meaning of I.R.C. sec. 2036(a)(2).
Held, further, because D’s LP interest was transferred, if at all, less than three years before her death, the value of the cash and securities transferred to LP is includible in the value of her gross estate to the extent required by either I.R.C. sec. 2036(a)(2) or I.R.C. sec. 2035(a).
Held, further, neither I.R.C. sec. 2036(a)(2) nor I.R.C. sec. 2035(a) (whichever applies) requires inclusion in the value of D’s gross estate of the full date-of-death value of the cash and securities transferred to LP; only the excess of that value over the value of the limited partner interest D received in return is includible in the value of D’s gross estate. I.R.C. sec. 2043(a).
Held, further, J’s transfer of D’s LP interest to T was either void or revocable under applicable State law because D’s power of attorney did not authorize J to make gifts in excess of the annual Federal gift tax exclusion; consequently, the value of the 99% limited partner interest in LP, as of the date of D’s death, is includible in the value of her gross estate under I.R.C. sec. 2033 or I.R.C. sec. 2038(a).
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.