Steve Akers, Senior Fiduciary Counsel, Southwest Region, Bessemer Trust, has made available for download his summary of Estate of Redstone v. Commissioner, 145 T.C. No. 11, in which the settlement of family litigation did not result in taxable gifts.  The abstract for Mr. Akers’ full report is as follows:

A settlement of litigation resulted in a resolution of a dispute regarding the ownership of 100 shares of closely-held stock registered in the name of one shareholder. The settlement resulted in the company agreeing to pay $5 million for 66 2/3 shares to the shareholder, with the remaining 33 1/3 shares being held in a trust for that shareholder’s children. The dispute centered around disagreements between the shareholder and his father, who was the president of the company, and who insisted that a portion of the shares were held in an “oral trust” for the benefit of the shareholder’s children. The court concluded that the settlement constituted a bona fide, arm’s-length transaction that was free from donative intent and that was “made in the ordinary course of business.” The transfer was made “for a full and adequate consideration in money or money’s worth,” which was the recognition that the shareholder was the outright owner of 66 2/3 of the shares in the agreement and that the company would pay $5 million in exchange for the shares. (The fact that the shareholder’s children were not parties to the settlement agreement – and therefore provided no consideration for the transfer of the shares – did not matter for purposes of determining whether the shareholder received full consideration in the settlement.) Estate of Redstone v. Commissioner, 145 T.C. No. 11 (October 26, 2015) (Judge Lauber).

Please click here for the full copy of Mr. Akers’ summary.

Posted by Logan Davis, Associate Editor, Wealth Strategies Journal.