A well-known, much-utilized, estate planning device seeks to devolve the most valuable asset of most people to their descendants in what testators perceive as the fairest way. As with all attempts at fair distribution, it attracts my interest on the occasions when it doesn’t work.

Simply, the device is to bequeath the family home to all children specifically and equally. Abuse has given rise, among other things, to the Uniform Protection of Heirs Property Act. Practicality has bestowed unanticipated tax complexities when one heir seeks to buy out the other. See my blogpost “Life After Federal Tax Consequences,” 6/17/11.

STJ Peter (“HB”) Panuthos illustrates another such in Edward George Shlikas, T. C. Sum. Op. 2024-10, filed 6/20/24. Here, Section 72(t)(2)(F), (8)(D)(i), combine to hit Edward George with 13K via the 10% whatever-it-is and a Section 6662(a) chop.

Edward George was caretaker of Mom’s home and caregiver to Mom. Edward George gave up his job and his rented apartment to move in with Mom during her last illness. Mom, apparently seeking fairness, bequeathed home to Edward George and bro Greg as joint tenants with right of survivorship. In English, this means last man standing takes all.

Edward George thus must buy out bro Greg’s share with cash from his retirement plans, but can’t prove the cash came from an IRA, a SEP, or a SEP/Simple. Thus, the $10K tax-free first-time homebuyer out is not available to Edward George, who is well below the 59-1/2 age cutoff for the Section 72(t) 10% whatever.

Edward George’s arguments about the arbitrary nature of the statute fall flat. Pore l’il ol’ Tax Court can’t help that.

“Petitioner contends that the imposition of the 10% additional tax on early distributions is arbitrary and capricious as the exceptions under section 72(t)(2) establish arbitrary qualifications. He contends it is arbitrary to allow an exception for using a distribution for higher education expenses per section 72(t)(2)(E) but not for the purchase of a home. He alternatively argues that had he made the distribution just 30 days later in 2020 instead of 2019, he would have qualified for the exception made for distributions under the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136, § 2202, 134 Stat. 281, 340–43 (2020).

“The Court is a court of limited jurisdiction and lacks general equitable powers.  There is no authority in the Code or caselaw for an equitable or hardship exception to the imposition of additional tax under section 72(t) on early distributions from a retirement account.” T. C. Sum. Op. 2024-10, at pp. 4-5. (Citations omitted).

Word to estate planners: Equal shares may be an easy solution for client and planner. For the beneficiaries/legatees, however, equal is not always fair.

As an Authority even more exalted than STJ Peter (“HB”) Panuthos put it, it comes to bring not peace, but a sword.