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Wednesday, March 05, 2003


The Estate of Ralph H. Davis, Deceased, Evelyn Davis, Personal Representative, was charged by the IRS with $220,593 in estate taxes because they claimed that the $564,862 the trust received from the estate did not qualify for the marital deduction. The question hinged on whether Mr. Davis intended to give his wife unrestricted use of the entire income from the trust. To resolve this question of intent, the Internal Revenue Code requires Tax Court to refer to California law, which in turn refers back to the Internal Revenue Code. The upshot is fortunately not an infinite loop, but rather a magical outcome whereby you can get the deduction simply by stating that you intend to get the deduction. You had the power inside of you the whole time. Just click your heels together three times and say, �I want the marital deduction, I want the marital deduction...�

Unfortunately, this power does not belong to Ms. Davis, it belonged to Mr. Davis, and he did not do that, and he is dead now. An unfortunate aspect of will writing is that your mistakes are not uncovered until they are impossible to correct. Rather, Mr. Davis said that the trustee was to provide Ms. Davis with all of the income necessary to live in the manner to which she had been accustomed. Tax Court said this was a severe restriction compared to �all income�, and therefore it was not substantially hers, and therefore the IRS won. Tax Court did not engage into a factual inquiry as to whether Ms. Davis had grown accustomed to treating all of Mr. Davis�s income as being substantially hers.

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