Probate & Trust Law Section Conference Manual ... - Minnesota CLE

In Estate of Christiansen v. Commissioner, 14 the decedent’s will left her entire estate to
her daughter. The daughter disclaimed a portion of the bequest (the disclaimed portion
represented all amounts over $6.35 million in value “as finally determined for federal estate tax
purposes”). The decedent’s will provided that any disclaimed amounts would pass 25% to a
charitable foundation and 75% to a charitable lead trust that would pay an annuity of 7% to the
foundation for 20 years with the remainder to pass to the daughter if she was then living. The
daughter did not disclaim this contingent remainder interest. The estate tax return claimed a
charitable deduction for the amount passing directly to the foundation and for the present
value of the foundation’s lead interest in the charitable lead trust. The Service disallowed a
deduction for any amount passing to the lead trust because the daughter failed to disclaim the
contingent remainder interest in the lead trust. While “partial disclaimers” are expressly
permitted under § 2518(c)(1), they must still meet the requirement in § 2518(b)(4) that the
disclaimed interest pass “to a person other than the person making the disclaimer.” The
Service concluded that by retaining her contingent remainder interest, the daughter effectively
disclaimed the interest to herself. The Tax Court upheld this position but allowed a deduction
for the amount passing directly to the charity.
That sent the Service to the Eighth Circuit, where it argued that because the final value
of the estate was not finally determined at the time of the decedent’s death, but only after a
partially successful challenge by the Service, the transfer to the foundation was, ultimately,
“dependent upon the performance of some act or the happening of a precedent event”
(namely, the Service’s challenge against the return and the subsequent settlement process) in
violation of Regulation § 20.2055‐2(b)(1). The Eighth Circuit rejected this argument, concluding
that the only uncertainty remaining after the disclaimer was the value of the estate (and, thus,
the amount of the deduction). As the court observed, “the Commissioner fails to distinguish
between events that occur post‐death that change the actual value of an asset or estate and
events that occur post‐death that are merely part of the legal or accounting process of
determining value at the time of death.”
The Service also argued that the daughter’s use of a fixed‐dollar disclaimer should be
void on public policy grounds because there’s no financial incentive for the Service to challenge
valuation positions taken on the estate tax return. But the court rejected this argument too,
noting that “the Commissioner's role is not merely to maximize tax receipts and conduct
litigation based on a calculus as to which cases will result in the greatest collection. Rather, the
Commissioner's role is to enforce the tax laws.” The court found this rule of construction
unnecessary because the estate’s fiduciaries already have an incentive to value assets properly.
As the court explained, “with a fixed‐dollar‐amount partial disclaimer, the contingent
beneficiaries taking the disclaimed property have an interest in ensuring that the executor or
administrator does not under‐report the estate's value. Such beneficiaries, therefore, have an
interest in serving a watchdog function.” The court thus affirmed the Tax Court’s decision.
14 586 F.3d 1061 (8 th Cir. 2009).
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