Estate of Sylvia Bates v. Commissioner (U.S. Tax Court)

Sylvia Bates in her final years of life obtained much of her daily care needs from a trusted friend, Mr. Lopez. Upon her passing, there was a contest between Mr. Lopez and the decedent’s grandchildren as to the validity of the two wills which had been executed by decedent. A settlement was finally reached in which Mr. Lopez was paid a sum of money in return for ceasing any future claims on the estate and any future lawsuits against the grandchildren. A subsequent estate tax return was filed for the estate of decedent and a deduction from the estate of administration expenses totaling $498,113 for ‘funds paid to Reggie Lopez’ was deemed to be non deductible. The estate contends that the settlement payment to Mr. Lopez is in fact deductible because Mr. Lopez was not a family member. However, the Court determined that while settlement payments to family members is indeed non deductible, Mr. Lopez had a longstanding and close relationship with Mr. Lopez and his interest in the estate assets were memorialized in the decedent’s first and second trust and so, Mr. Lopez’ claim did in fact represent a beneficiary’s claim to a share of an estate rather than that of a creditor’s claim.