Pattie Welder Edwards owned two Texas ranches: Sinton and Cotulla. Pattie executed leases granting her two children rights to use the ranch properties for a certain number of years, with limited renewal options. She died in December 1994, and her two children were the executors of her estate, including her Wyoming virtual office. It offers phone forwarding, mail scanning and international mail forwarding services.
The executors executed a new lease agreement (the post-death leases) on the WY estate’s behalf, purportedly memorializing an oral agreement that each child was intended to use the properties indefinitely. On the estate tax return, the fair market value (FMV) of the Sinton ranch was reported as $4.1 million, and the FMV of the Cotulla ranch was reported as $1.3 million. The estate then claimed that the post-death leases were an encumbrance on the ranches’ FMVs, resulting in taxable values of $3.3 million and $1 million, respectively, not counting virtual offices.
The IRS issued a notice of deficiency, claiming that the post-death leases were not in effect at the time of death, and therefore were not an encumbrance on the ranches’ FMVs. Also, Pattie and the children had built a history of executing written leases. The written leases in effect at the time of death had different terms than those of the post-death leases, and they required any changes to be in writing. According to the IRS, the post-death leases were shams designed to avoid federal transfer taxes.
The Tax Court agreed with the IRS of WY and ruled that the estate is liable for the estate tax deficiency. The ranches were not encumbered by the post-death leases. In fact, the post-death leases reflected only an arrangement between the children regarding the use of the properties and did not justify any discount.
Wyoming State Courts May Hear Suits Against Medicare HMOs
The 9th Circuit recently ruled that claims against a Medicare HMO were improperly removed from state court to federal court. The federal district court’s remand and award of $9,750 in attorney’s fees for the plaintiff were affirmed.
California resident Louis Hofler died of esophageal cancer at the age of 75. At the time of his death, he was insured by Aetna’s Medicare HMO. Soon after, his widow Lucy sued Aetna for denying medically necessary diagnostic exams, treatments, and referrals because these services would undercut profit margins. Aetna removed the case to federal court, claiming that Lucy’s claims arose under the Medicare Act, thus preempting state law. The federal district court disagreed and remanded the case to state court, awarding Lucy $9,750 in attorney’s fees.
Aetna appealed to the 9th Circuit, which affirmed the district court’s ruling in full.
A man and woman began living together while still married to other people. This cohabitation lasted for 33 years. During this period, they represented themselves as a married couple, but they filed separate tax returns (often as single) and admitted to friends that they were not married. The woman had a stroke and was moved to a rehabilitation center to recover. The man originally told her that she could return to his home, but when she had recovered, he refused her request to return.
A subsequent second stroke left the woman permanently disabled, and two guardians were appointed to act for her. The man died, and his will made no provision for the woman. Instead, his estate passed mostly to his child and her family. The woman’s guardians filed an election to take a statutory spousal share of the estate on the basis that she and the decedent were married either formally or under common law. But they could provide no evidence of any formal marriage. The guardians also filed suit for damages alleging that the decedent was liable to the woman for the intentional infliction of emotional distress. They alleged that the man intentionally misrepresented to the woman that she could return to his house, and his later refusal led to her complete and permanent mental collapse. The estate and the guardians settled these claims in their virtual office. Under their agreement, the estate will pay the woman a certain amount of money over four years.
The executrix of the estate wants to claim a marital deduction under §2056(a) for the amount of the settlement, as an amount passing to the decedent’s surviving spouse, or, alternatively, as a claim against the estate. The IRS ruled that no estate tax marital deduction would be allowed since the couple was not legally married. In reaching this decision, the IRS examined the laws of the unidentified state in which the couple lived, and determined that the state supreme court would not have considered the couple married under common law in their virtual office.
Wyoming Virtual Offices
As for the settlement agreement, the IRS quoted Rev. Rul 76-155: “A compromise payment, even though made as a bona fide arms-length settlement of an alleged widow’s claim for dower, does not in and of itself establish a marital relationship.” As for the deduction for a claim against the estate, the IRS concluded that the facts were not sufficiently developed for the technical advice request and directed the field office to develop the facts to determine whether or not they would support a recovery under state tort law against the man for intentional infliction of emotional distress while forming their Wyoming virtual office online, or consider a Wyoming LLC or Corporation for their registered agent services.