or

The Great Joust

One of my nearest and dearest, and her spouse, are great fans of the local Renaissance Fair. Unfortunately, the late Marion Levine was not the owner of the one they patronize, although she did own two (count ’em, two) others. I’ll let Judge Mark V Holmes explain.

“These are a bit like state fairs, if the state were a small principality in fifteenth-century Europe populated entirely by modern people who enjoy costumed role-playing and adding extra ‘”e”s’ to words like ‘old’ and ‘fair.’” 158 T. C. 2, at p. 5.

But the late Marion owned a lot more, after she sold the family supermarket chain, and started buying real estate, trailer parks, and stocks. The late Marion also wanted to provide for her two children, who were often at odds, and her grandkids. Fortunately, she had her trusty CPA and general manager Larson, who, with the two children aforesaid, had powers of attorney. If there was any disagreement, majority ruled. Better still, she had her trusty attorney Shane Swanson, Esq., who gets a Taishoff “Good Job, First Class” as his split-dollar life insurance arrangement does a grand slalom around Sections 2036, 2037, and 2703 (with much “somber reasoning and copious citation of precedent”).

Of course, for this to work, there needs to be a client with a heavy-duty estate, with enough cash to buy a hefty insurance policy or two, children and grandkids the client wants to benefit, which children have net worths large enough, and healths good enough, to let an insurer insure their lives for heavy-duty dollars. And same cannot cramp client’s lifestyle; Marion has GRAT and QPRT and cash, so she’s in.

The case is Estate of Marion Levine, Deceased, Robert L. Larson, Personal Representative, 158 T. C. 2, filed 2/28/22.

Shane creates two trusts, a revocable for Marion and an irrevocable for children but run by Larson, organized under the beneficent SD statutes, that allow investment advisors to overrule administrators, while remaining fiduciaries. Revocable lends irrevocable $6.5 million borrowed using Marion’s assets as collateral. Irrevocable buys last-to-die life insurance policies on daughter and her spouse, because son was uninsurable, and gives revocable a note for the $6.5, payable at the greater of (i) total premiums paid or (ii) either (a) the current cash-surrender values of the policies upon the death of the last surviving insured or (b) or the cash-surrender values of the policies on the date that they were terminated, if they were terminated before both insureds died. 158 T. C. 2, at p. 17.

Irrevocable owns the policies. Revocable owns only the receivable.

Of course there’s a joust over the FMV of the receivable, because that’s in the late Marion’s estate, but that’s stiped out at $2.3 million.

IRS claims all of the $6.5 is in, because Marion and Larson could amend the deal and she’d get the policies. Except any two parties could mutually terminate any deal, and the power or right to revoke a deal doesn’t extend to power of persuasion. And Larson is fiduciary both for the children and the grand kids. If he colluded with Marion to revoke, the grandkids get nothing.

Now gift tax is another story, but we’re not going there here.

IRS loses. The stiped $2.3 is all that is subject to tax.

T&E lawyers, read the whole opinion. Trusty Shane Swanson did a real good job.