Estate tax exposure of family limited partnership under Section 2036

Hellwig, Brant J

Editors' Synopsis: Recently, a district court in Texas decided Kimbell v. United States, the first case in which a court applied I.R.C. [sec] 2036 in the family limited partnership context based on the structure of the arrangement as opposed to the decedent 's continued use of the partnership property for personal purposes. This theory represents a way in which the Internal Revenue Service could combat the use of family limited partnerships to generate valuation discounts. This Article discusses limited partnerships as an estate-planning vehicle and outlines the manner in which I.R. C. [sec] 2036 could be applied to property transferred to a family limited partnership. Finally, the Article concludes with a discussion of how the Tax Court could apply I.R.C. [sec] 2036 when it decides Estate of Strangi on remand.

I. INTRODUCTION

To put it mildly, the Internal Revenue Service ("Service") has had a difficult time combating the use of closely held limited partnerships as a means of generating valuation discounts for estate and gift tax purposes.1 Perhaps the lowest point in the Service's ongoing litigation in this area was the day the Tax Court returned its opinions in Estate of Strangi v. Commissioner2 and Knight v. Commissioner.3 These cases involved limited partnerships that were established quite clearly for no other purpose than to enable the taxpayer to transfer wealth on a valuation-discounted basis. The Service argued that the partnership form should be disregarded for transfer tax purposes, meaning the property to be valued would be a proportionate amount of the property owned by the partnership as opposed to the equity interest in the partnership that was actually transferred.4 The former would be valued without regard to the lack-of-control and lack-of-marketability discounts that typically apply to the latter. The Tax Court rejected this argument, determining that it was not at liberty to disregard the state-law characterization of the property that constituted the subject of the transfer.5 In short, these two decisions eliminated any reservations that taxpayers previously had regarding the need to establish or defend the business purpose of the entity in order for the valuation discounts to be respected. Rather, the taxpayer's only concern was ensuring that a valid limited partnership had been formed under state law6-not exactly a tough hurdle to clear.

While the Tax Court opinions in Estate of Strangi and Knight appeared to give taxpayers the green light to use family limited partnerships as a means of reducing their effective marginal gift and estate tax rates, the court did sound one cautionary note in Estate of Strangi. The court stated that the facts surrounding that case "suggest the possibility" of including the assets transferred to the partnership in the decedent's gross estate under [sec] 2036.7 Yet the Tax Court declined to address this argument, contending that the Commissioner had raised it too close to trial.8

The Fifth Circuit affirmed the Tax Court decision in Estate of Strangi in all respects except one.9 After noting that "the tax court suggested that if the Commissioner had timely filed his notice to amend to add an I.R.C. [sec] 2036 claim, it probably would have used that section to include in the estate the assets Strangi transferred to the SFLP,"10 the Fifth Circuit reversed the Tax Court's denial of leave for the Commissioner to amend his answer to raise the [sec] 2036 argument.11 Estate of Strangi is currently pending before the Tax Court on remand.

In the meantime, a recent district court case out of Texas has decided the [sec] 2036 argument on facts similar to those of Estate of Strangi. In Kimbell v. United States,12 the court determined that the assets transferred by the decedent to a family limited partnership were included in her gross estate based on the powers that she could exercise over distributions of income generated by the transferred property as the general partner of the partnership.13 This was the first case to apply [sec] 2036 in the family limited partnership context based on the structure of the arrangement as opposed to the decedent's continued use of the partnership property for personal purposes.14 If the theory employed by the district court in Kimbell is upheld on appeal and followed by other courts, then the Service will have finally found a way to stem some of the hemorrhaging of the federal transfer tax base that results from the aggressive use of family limited partnerships to generate valuation discounts.

This Article begins with a discussion of the attractiveness of limited partnerships as an estate-planning vehicle. The Article then outlines the manner in which [sec] 2036 could be applied to property transferred to a family limited partnership. In doing so, the Article first reviews recent cases in which the Tax Court has applied [sec] 2036 in the family limited partnership context based on the transferor's retained beneficial enjoyment of the transferred property. The Article then moves on to discuss the Kimbell decision. The facts of Kimbell serve as a platform for evaluating the Service's argument for applying [sec] 2036 to assets transferred to a family limited partnership based on the transferor's retained powers over partnership distributions. Any argument for applying [sec] 2036(a) based on the transferor's retained powers as a fiduciary of a business entity necessitates a discussion of the Supreme Court case of United States v. Byrum,15 which the Article undertakes. The Article closes with a discussion of how the Tax Court could apply [sec] 2036 when it decides Estate of Strangi on remand.

II. THE LIMITED PARTNERSHIP AS AN ESTATE-PLANNING TOOL

Closely held limited partnerships have developed into a staple of the estate-planning industry, and for good reason.16 Individuals are warm to the idea of reducing the size of their gross estates for estate tax purposes, yet they often cool at the prospect of relinquishing control over their property. From a property disposition standpoint, a trust arrangement would be preferred. As trustee, the grantor could continue to manage the transferred property while also retaining the ability to determine who, when, and to what extent others would benefit from the property and the income it generates. Yet from an estate tax planning standpoint, this type of trust arrangement offers no advantages over outright ownership of the property. While the grantor's continued management of the trust property is not problematic, the grantor's retention of authority to determine the timing and amount of trust distributions or the identity of the distributees generally will cause the trust property to be included in the transferor's gross estate at its date-of-death value.17

This is where the limited partnership comes in. By first creating and capitalizing a limited partnership in exchange for interests in the partnership as general partner and limited partner18 and then making gratuitous assignments of limited partner interests,19 an individual can satisfy both her property disposition and estate tax planning objectives. As general partner, the transferor has authority over partnership operations and the management of partnership property. Furthermore, the general partner can determine the timing and amount of operating distributions from the partnership. A leading article on the use of family limited partnerships illustrates how these entities can be used as estate-planning vehicles:

A limited partnership . . . can serve as a "wrapper" around family assets and allow those assets to be managed like a unitrust. The managing partner can invest in a way that produces the highest rate of return consistent with his or her tolerance for risk, whether the source of that return is appreciation or current income. The managing partner then may distribute the percentage of the partnership's assets that he or she deems appropriate to the current "beneficiaries" (i.e., partners) of the partnership.20 Thus, much of what is sought through the use of the trust form can be accomplished through a limited partnership.21 Yet it is generally believed that use of the partnership form will avoid the gross estate inclusion rules that apply in the trust context. Accordingly, only the value of the equity interest that the transferor retains at the time of her death will be included in her gross estate.

The advantages of using limited partnerships as an estate-planning vehicle by no means end there. Closely held limited partnerships are an attractive estate-planning tool even for those individuals who are otherwise willing to make outright transfers of property and therefore do not need a trust substitute. The reason is that the transfer of an interest in a closely held partnership allows the taxpayer to exploit a structural flaw in the transfer tax system-its standard for valuation. The value of property included in the gift tax or estate tax base is the value at which such property would change hands between a hypothetical disinterested third-party willing buyer and a hypothetical disinterested third-party willing seller.22 Use of this objective standard leads taxpayers to structure their holdings intentionally so that their objective value can be determined through the application of various valuation discounts.23 As explained below, closely held limited partnerships offer an ideal vehicle to accomplish this goal.

Suppose an individual owns $1 million worth of stock in companies that are traded on the New York Stock Exchange. In this case, there is a unity between the subjective value of the property to the individual and the property's objective value to third parties.24 Now assume that the individual transfers this $1 million of stock to a newly formed partnership of which she will serve as general partner, and in which her family members or other intended beneficiaries will constitute the remaining partners. By definition, the individual must value the partnership interest received in exchange for the contribution at a minimum of $1 million-otherwise she would not have voluntarily gone forward with the capitalization of the partnership. The individual has thus suffered no loss of subjective value by reason of the transaction. The same cannot be said of objective value. Even though the individual's partnership interest would entitle her to a distribution of $1 million of stock if the partnership were liquidated, a disinterested third party would not pay $1 million for such partnership interest. Because a third-party transferee of the partnership interest would not be entitled to participate in the management of the partnership affairs unless the remaining partners (all of whom are members of a family to which the third party bears no relation25) admitted her as a partner, the transferee is only guaranteed to receive the distributions that would have been made to the transferor partner.26 Therefore, a disinterested third-party purchaser will discount the value of the partnership interest to reflect the minority-interest character of the transferred interest.27 Furthermore, if the disinterested third-party purchaser later desired to dispose of the partnership interest, she would have considerable difficulty in doing so because no market exists on which an interest in a closely held partnership can be readily liquidated. Thus, the disinterested third-party purchaser would further discount the value of the partnership interest to reflect its lack of marketability. Accordingly, the objective value of the partnership interest received by the individual in exchange for the contribution of $1 million of stock will be something less, perhaps quite significantly less, than $1 million.28

By contributing her publicly traded stock to a closely held limited partnership, the individual has wisely structured her holdings so that the objective transfer tax value of the property is lower than the property's subjective worth. Following the individual's death, the partnership can be (and often is) liquidated so that the individual's intended beneficiaries will receive direct ownership of their respective portions of the underlying partnership property.29 At that point, subjective value and objective value are once again united. In this manner, the partnership form can serve as a convenient vehicle through which to depress the value of assets for transfer tax purposes. With courts frequently sustaining combined valuation discounts in the neighborhood of 30% to 40%,30 the use of limited partnerships as an estate-planning device permits taxpayers unilaterally to reduce their effective transfer tax rate at the expense of relatively nominal transaction costs.

III. THE ARGUMENT FOR INCLUSION UNDER SECTION 2036

Section 2036(a) provides two alternative grounds for including in a decedent's gross estate assets that the decedent has transferred. The first ground, [sec] 2036(a)(1), applies when the decedent retained beneficial enjoyment of the transferred property. In contrast, [sec] 2036(a)(2) applies when the decedent retained the right to determine who would benefit from the transferred property. Relevant portions of [sec] 2036 are reproduced below:

[sec] 2036. Transfers with retained life estate

(a) General Rule.-The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death-

(1) the possession or enjoyment of, or the right to income from, the property, or

(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.

As stated by the Supreme Court, the general purpose of [sec] 2036 is "to include in a decedent's gross estate transfers that are essentially testamentary-i.e., transfers which leave the transferor a significant interest in or control over the property transferred during his lifetime."31

A. Inclusion Based on Retained Beneficial Enjoyment of Partnership Property

The limited success that the Commissioner has experienced in litigating against the use of family limited partnerships to generate valuation discounts has come under [sec] 2036(a)(1). However, the government's victories in these cases typically depend upon a certain degree of ill-advised behavior on the part of the taxpayer, such as when the taxpayer fails to respect the separate nature of the partnership by commingling partnership assets with personal funds or when the taxpayer continues to use partnership property as if it were her own. Recent cases in which the government has successfully argued for inclusion based on the decedent's retained beneficial enjoyment of property transferred to the partnership include Estate of Reichardt v. Commissioner,32 Estate of Harper v. Commissioner33 and Estate of Thompson v. Commissioner.34 These cases are discussed individually below.

1. Estate of Reichardt v. Commissioner

In June of 1993, shortly after being diagnosed with terminal cancer, the decedent formed a limited partnership to which he transferred substantially all of his property.35 The decedent created a revocable trust to serve as the sole 1% general partner of the partnership.36 Although the decedent and his two children were named as co-trustees of the trust, each trustee was authorized to act individually on behalf of the trust.37 The decedent was the only trustee ever to sign partnership checks or execute documents on behalf of the trust or the partnership.38

In October of 1993, the decedent transferred a 30.4% limited partnership interest to each of his children.39 The decedent reported the value of each transfer on the gift tax return at $310,000.40 The decedent died in August of 1994, just over a year after the partnership was formed.41 The estate tax return reported ownership of a 36.46% limited partnership interest and a 1% general partnership interest.42 The estate returned the combined value of these interests at $359,000.43

One asset the decedent transferred to the partnership was his personal residence, which the decedent continued to use after the transfer without paying rent.44 Shortly after the partnership was formed, the decedent deposited approximately $20,000 of partnership funds into his personal checking account.45 In addition, the decedent used partnership funds to pay for his personal living expenses.46

Based on this evidence, the Tax Court had little difficulty in finding the existence of an implied agreement among the parties at the time the decedent transferred his property to the partnership that he would retain the present economic benefits of the transferred property.47 Such an implied agreement, even if not legally enforceable, is sufficient to trigger inclusion of the transferred property in the transferor's gross estate under [sec] 2036(a)(1).48 Accordingly, all property transferred to the partnership by the decedent was included in his gross estate at its undiscounted date-of-death value, which the court determined to be approximately $1.6 million.49

2. Estate of Harper v. Commissioner

Estate of Harper involved a decedent who transferred liquid assets to a limited partnership in exchange for a 99% interest as limited partner.50 The decedent's son and daughter held the remaining interest as general partners, with the son designated as the managing general partner.51 Shortly after the partnership was formed, the decedent assigned a 24% limited partnership interest to his son and a 36% limited partnership interest to his daughter.52

The process of transferring formal title to the assets that the decedent assigned to the partnership took approximately four months.53 A checking account was not established on behalf of the partnership until three months after the partnership was formed.54 In the interim, amounts received with respect to the securities assigned to the partnership were deposited into the decedent's personal checking account.55 The court noted a pattern of disproportionate distributions from the partnership in favor of the decedent, including a distribution of $4,000 to the decedent just two days prior to his death to enable the decedent to complete a personal gift.56 Following the decedent's death roughly seven months after the partnership was created, various expenses of the estate, including the federal estate tax liability, were paid through distributions from the partnership.57 Citing the commingling of partnership funds with the decedent's personal account,58 the history of disproportionate distributions to the decedent and his estate,59 and the testamentary characteristics of the arrangement,60 the court concluded that the decedent retained the economic benefit of the property transferred to the partnership within the meaning of [sec] 2036(a).61

3. Estate of Thompson v. Commissioner

Much of the reasoning employed by the Tax Court in Estate of Harper can be found in its subsequent opinion in Estate of Thompson.62 The latter case involved a decedent who created two separate limited partnerships. The decedent's daughter and her family participated in one of the partnerships; the decedent's son and his family participated in the other.63 Each partnership was created in the spring of 1993, when the decedent was 95 years old.64 The decedent transferred to the respective partnerships the bulk of his wealth, consisting primarily of marketable securities as well as various notes receivable from his family members.65 Before the partnerships were formed, the decedent's daughter inquired whether her father could continue to draw amounts from the brokerage account transferred to the partnership in order to make his annual-exclusion gifts to family members.66 Later in 1993, each partnership transferred $40,000 to the decedent to facilitate his annual gifting program.67 Similarly, in the early part of 1995, each partnership distributed approximately $45,000 to the decedent's checking account so that checks written to the decedent's family members at Christmas would not bounce.68 Lastly, in 1995 there was correspondence between the decedent's children regarding the insufficiency of the decedent's personal funds to cover his living expenses, and the need for a distribution of partnership funds to cover the difference.69 In March of 1995, one of the partnerships distributed $12,500 to the decedent presumably for this purpose.70

Estate of Thompson was another case in which the Tax Court had little difficulty finding the existence of an implied understanding between the parties that the decedent would retain the enjoyment and economic benefit of the property he had transferred to the partnerships.71 Accordingly, the property transferred by the decedent to the partnerships was included in the decedent's gross estate at its date-of-death value.72

A number of lessons can be learned from the [sec] 2036(a)(1) cases discussed above. First, if a limited partnership is to be used as the focal point of an individual's estate plan, it should not be overdone. Specifically, the individual should retain sufficient assets in her individual name to ensure that the assets of the partnership will not be called upon to fund her living expenses or other personal needs. Second, the individual must respect the separate nature of the partnership. In this regard, the partnership property should not be commingled with the individual's personal accounts, and the individual should not continue to use personal-use property that has been transferred to the partnership without paying fair market value rent to the partnership. In situations in which taxpayers run afoul of the above-described guidelines, the Tax Court appears quite willing to find the existence of an implied understanding among the parties that the taxpayer would retain the beneficial enjoyment of the property sufficient to trigger inclusion of the partnership property in the taxpayer's gross estate under [sec] 2036(a)(1).

B. Inclusion Based on the Decedent's Control Over Beneficial Enjoyment of Property

One interesting aspect of the Tax Court's opinion in Estate of Reichardt was the emphasis the Tax Court placed on the decedent's continued management of the property transferred to the partnership. The opinion made the following observation:

Decedent managed the trust which managed the partnership. Decedent was the only trustee to sign the articles of limited partnership, the deeds, the transfer of lien, and any document which could be executed by one trustee on behalf of the trust. Decedent was the only trustee to open brokerage accounts or sign partnership checks.73

The Tax Court used the decedent's continued management of the property as a basis upon which to conclude that the decedent had retained the beneficial enjoyment of the property within the meaning of [sec] 2036(a)(1).74

The Tax Court's emphasis on the decedent's continued management of property transferred to the partnership as a means of including the property under [sec] 2036(a) runs counter to the well-settled principle that managerial powers fall outside the scope of [sec] 2036.75 For example, if A transfers property to a trust that provides a mandatory payment of the income stream to B for B's life, remainder to C, then [sec] 2036(a)(2) has no application to the trust even if A names herself as trustee and in such capacity continues to manage the investment of the transferred property.76 Thus, a transferor's continued ability to manage or invest the property transferred to a family limited partnership cannot alone constitute the basis upon which to apply [sec] 2036(a) to the arrangement.

Yet this is not to say that the transferor's continued control over the transferred property is irrelevant for purposes of [sec] 2036(a). If the transferor retains not only the ability to manage the transferred property but also the ability to determine who benefits from the transferred property, [sec] 2036(a) is implicated. Take as an example an individual who transfers a vacation beach house to a limited partnership formed by the individual with his children. If the transferor serves as the general partner or otherwise retains the ability to determine which family members can use the beach house and when, then the transferor has retained a prohibited power that implicates [sec] 2036(a)(1) and [sec] 2036(a)(2). Section 2036(a)(1) is implicated because the transferor has retained the ability to use the beach house whenever he wishes. Section 2036(a)(2) is implicated because the transferor has retained the ability to determine if and when the other beneficial owners of the partnership will be able to use the property. Under either prong of [sec] 2036(a), the date-of-death value of the beach house will be included in the transferor's gross estate.77

With respect to income-producing property, beneficial enjoyment is determined with respect to who receives the income stream.78 Thus, if a transferor conveys a securities portfolio to a limited partnership and retains not only the right to continue managing the portfolio but also the right to benefit personally from the income stream produced by the assets or the right to determine if and when other beneficiaries will receive such income, then [sec] 2036(a) is implicated. In Kimbell v. United States,79 a federal district court used the decedent's ability to control distributions of partnership income as general partner to include the assets transferred to the partnership by the decedent in her gross estate under both [sec] 2036(a)(1) and (a)(2). The Kimbell decision and its potential impact on the estate tax landscape for family limited partnerships are discussed below.

IV. THE KIMBELL DECISION

A. Facts

The facts of Kimbell made it an excellent case for the government to litigate. During January of 1998, the decedent, Ruth A. Kimbell, formed the R.A. Kimbell Management Co., LLC along with her son and daughter-in-law.80 The decedent owned a 50% interest in the LLC,81 and her son and daughter-in-law owned the remaining 50% interest in equal shares.82 The LLC was manager-managed, with the decedent's son serving as the sole manager.83 Shortly after the LLC was organized, the decedent and the LLC formed the R.A. Kimbell Property Co., Ltd, a limited partnership under Texas law.84 The LLC contributed 1% of the capital of the Partnership for a 1% interest as general partner, while the decedent contributed 99% of the property for a 99% interest in the Partnership as limited partner.85 Approximately two months after the Partnership was formed, the decedent died at the age of 96.86

The opinion does not describe the property that the decedent used to capitalize the partnership. Nonetheless, the value of the property involved was substantial. The Service valued the decedent's 99% limited partner interest at $2.463 million.87 The estate apparently claimed a combined valuation discount in the neighborhood of 50%, because the estate tax return valued the decedent's 99% limited partner interest at $1.257 million.88

A few specifics of the partnership agreement are mentioned in the court's analysis. The general partner had "sole discretion" to decide on distributions of income from the partnership.89 The general partner could be removed by a vote of 70% in interest of the limited partners.90 If the general partner was removed, a majority in interest of the limited partners could elect a replacement.91 Last, the partnership agreement provided that "The General Partner will not owe a fiduciary duty to the Partnership or to any Partner."92

B. Opinion

By way of a motion for summary judgment, the government argued that the property transferred by the decedent to the partnership should be included in her gross estate under [sec] 2036(a).93 The court began its analysis of the [sec] 2036(a) issue by noting that the purpose of that section was "to prevent individuals from avoiding estate tax by transferring their assets to others prior to death."94 After quoting the text of the statute, the court framed the [sec] 2036(a) inquiry in a nonconventional manner:

[U]nder the plain language of [sec] 2036(a), "all property to the extent of any interest therein" which Decedent had "at any time" transferred is part of the estate unless the property interest qualifies for an exception to the general rule of inclusion. The two exceptions provided by [sec] 2036(a) are (1) transfers which are "bona fide sale[s] for an adequate and full consideration" (the "Bona Fide Sale Exception") and (2) transfers after which the decedent retains neither the "possession or enjoyment of, or the right to income from the property" nor "the right, either alone or in conjunction with any other [sic] person, to designate the persons who shall benefit [sic] or enjoy the property" (the "Retained Income or Rights Exception").95

Thus, because the decedent had transferred her property to the partnership, the starting point of the court's analysis was that the property would be included in her gross estate under [sec] 2036(a) unless one of its articulated exceptions applied.96

Following this analytical framework, the court first addressed whether the statute was inapplicable because the capitalization of the partnership constituted a bona fide sale for an adequate and full consideration in money or money's worth. Not surprisingly, the court followed the Tax Court in holding that this exception does not apply to consideration received upon the formation of a family limited partnership.97

The more interesting part of the court's opinion concerns its discussion of what it described as the "Retained Income or Rights Exception."98 After citing precedent for the proposition that a transferor retains the enjoyment of property if an express or implied agreement exists at the time of the transfer that the transferor will retain the present economic benefits of the property,99 the court declared that there was "no need to search for an implied agreement" among the parties.100 Rather, the partnership agreement itself was sufficient.101 The court declared that, pursuant to the partnership agreement, the decedent possessed the ability to remove the LLC as general partner and to name herself in its place.102 The general partner had "sole discretion" over distributions of income from the partnership.103 Because the decedent had the ability to designate who would serve as general partner, she retained the power "to either personally benefit from the income of the partnership or to designate the persons who would benefit from the income of the partnership."104 The court therefore concluded that the partnership property was included in the decedent's gross estate under both [sec] 2036(a)(1) and (a)(2).105

The decedent's estate argued that the Supreme Court decision in United States v. Byrum106 prevented the application of [sec] 2036(a) to the property transferred to the partnership because of the decedent's fiduciary duties. The court dispensed with this argument in summary fashion. The court noted that Byrum "is not only distinguishable on the facts from our case, but was expressly overruled by Congressional enactment of [sec] 2036(b)."107 The estate had a difficult time making the Byrum argument, given that the partnership agreement waived the general partner's fiduciary duty to the partnership and other partners. Yet this was not the sole basis upon which the court found Byrum distinguishable. The court asked the following rhetorical question: "Assuming such fiduciary duties exist, to whom does a party which owns 99% of the Partnership owe them?"108 The court concluded that "[t]he fiduciary argument falls flat."109

C. Analysis of Decision

The government's victory in Kimbell is quite different from prior victories under [sec] 2036(a)(1). The decision did not depend on facts surrounding the operation of the partnership that suggested the decedent actually retained the beneficial enjoyment of the property transferred to the partnership. Rather, the court determined on summary judgment that [sec] 2036(a) applied based on the structure of the partnership arrangement. The basis for inclusion was the decedent's retained power over distributions from the partnership. Kimbell was the first case in which a court held that the powers held by a general partner in a family limited partnership were sufficient to trigger inclusion under [sec] 2036. If the decision holds up on appeal and is followed by other courts, then the government will have gained significant ground in its ongoing struggle against the use of limited partnerships to generate valuation discounts.

While the district court in Kimbell reached some profound conclusions regarding the reach of [sec] 2036(a) in the family limited partnership context, the analysis supporting those conclusions is either minimal or simply lacking altogether.110 The next portion of the Article examines the merits of the Kimbell court's conclusions.

1. Section 2036(a)(1)

The court's determination that the decedent retained "the possession or enjoyment of, or the right to income from" the property that she transferred to the partnership within the meaning of [sec] 2036(a)(1) results from a straightforward application of the statute. Although [sec] 2036(a) typically is associated with transfers in trust, the statute provides that the transfer of property to which it applies can be "by trust or otherwise."111 In addition, a "right to income" exists not only in the situations in which the decedent has expressly reserved the income stream from property, but also in situations in which the decedent retains the discretionary ability to pay such income to herself or for her benefit. For example, if an individual creates a trust for the benefit of herself and other family members while retaining the discretionary ability to distribute trust income to herself, the individual has retained the right to the income from the transferred property within meaning of section 2036(a)(1).112

The Kimbell opinion does not discuss whether any distributions of income were made from the partnership to the decedent. Given that the partnership was in existence only for two months before the decedent's death, it is doubtful that any distributions were made. Yet the existence of actual distributions to the decedent is immaterial. As explained by the Tax Court in Estate of Pardee v. Commissioner, [sec] 2036(a)(1) is not limited to situations in which income was actually distributed to the decedent during life:

[S]ection 2036(a)(1) refers not only to the possession or enjoyment of property, but also to "right to income" from property. The section does not require that the transferor pull the "string" or even intend to pull the string on the transferred property; it only requires that the string exist.113

In Kimbell, the decedent's "string" was her ability to appoint herself as general partner in which capacity she would have possessed sole discretion over distributions of partnership income. In this manner, the decedent retained the practical ability to ensure that she could benefit from the income generated by the partnership assets if necessary.

2. Section 2036(a)(2)

Section 2036 applies not only to a transferor's retention of a beneficial interest in transferred property but also to the transferor's retention of the ability to affect the income interests of other beneficiaries. Specifically, [sec] 2036(a)(2) applies when the transferor retains the "right . . . to designate the persons who shall possess or enjoy the property or the income therefrom." The Supreme Court has stated that the term "right" as used in subsection (a)(2) "connotes an ascertainable and legally enforceable power."114

At first blush, these ground rules make it appear as if [sec] 2036(a)(2) may not be applicable to the facts at issue in Kimbell. The decedent was not actually serving as general partner at the time of her death, and therefore she did not possess sole authority over distributions of partnership income. Furthermore, if the partnership agreement specified the manner in which partnership distributions would be made if they were declared, then it would appear that any discretion over partnership distributions would not involve determining which particular partner would receive the income. Yet as described below, the scope of [sec] 2036(a)(2) exceeds what one may expect upon first reading the statute.

To start, the ability to accumulate income from transferred property as opposed to making a current distribution of such income constitutes the right to designate the persons who shall possess or enjoy the income from the transferred property under [sec] 2036(a)(2).115 Thus, even if the partnership agreement in Kimbell specified the manner in which any distributions from the partnership were to be made, the mere ability to delay the beneficial enjoyment of partnership income is sufficient to trigger inclusion under [sec] 2036(a)(2).

In addition, the level of participation in a particular decision affecting partnership income necessary to trigger [sec] 2036(a)(2) is quite low. For instance, a [sec] 2036(a)(2) power exists even if it must be exercised in conjunction with another person or persons.116 In this regard, it is immaterial whether the person with whom the power must be exercised has an interest adverse to the exercise of the power.117 Accordingly, the transferor need not possess practical control over the manner in which income from transferred property will be distributed for [sec] 2036(a)(2) power to exist. Furthermore, the decedent need not actually possess the prohibited [sec] 2036(a)(2) power at death for [sec] 2036(a)(2) to apply. The regulations note that it is immaterial whether the actual exercise of the prohibited power is subject to a contingency beyond the decedent's control that did not occur before the decedent's death.118

In Kimbell, the decedent's authority over distributions of partnership income was subject to a condition precedent within her control-the unilateral ability to remove the LLC as general partner and to name herself in its place. This power is akin to the situation contemplated in the regulations in the context of a trust:

If the decedent reserved the unrestricted power to remove or discharge a trustee at any time and appoint himself as trustee, the decedent is considered as having the powers of the trustee.119

Accordingly, the court's determination that the decedent in Kimbell should be charged with the powers held by the general partner even though she was not serving as general partner at the time of her death is consistent with the regulations interpreting [sec] 2036(a)(2).

3. Relevance of United States v. Byrum

The estate argued that the decedent did not possess the power "to take over the partnership" because of her fiduciary duties,120 citing the Supreme Court decision in United States v. Byrum.121 The Byrum decision stands as the principal authority for the proposition that powers held as a fiduciary in a business entity are exempt from the application of [sec] 2036. The Kimbell court rejected the estate's argument under Byrum for two reasons. First, the court stated that Byrum was distinguishable on its facts.122 Second, the court described Byrum has having been overruled by the enactment of [sec] 2036(b).123 Before addressing the court's alternative bases for rejecting the estate's argument, the Article will first review the Supreme Court's decision in Byrum.

Byrum involved a decedent who created an irrevocable trust for the benefit of his children and funded the trust with shares of stock that he owned in three closely held corporations.124 The decedent named an independent corporation as trustee, and the trust instrument provided that the trustee was authorized, in its sole discretion, to pay income and principal of the trust to or for the benefit of the trust beneficiaries.125 Nonetheless, the decedent retained the right to vote the shares of closely held stock that he transferred to the trust, as well as the right to veto any sale or other transfer of such stock by the trust.126 The trust retained the corporate stock until the decedent's death, at which time the decedent possessed the right to vote not less than 71% of the stock of each corporation.127 Each corporation had minority shareholders unrelated to the decedent.128

The Commissioner argued that the stock of the closely held corporations owned by the trust should have been included in the decedent's gross estate under [sec] 2036(a)(2).129 The specifics of the Commissioner's argument were as follows: Through his ability to vote a majority of the shares of each corporation, the decedent was able to select the corporate directors. The ability to determine board membership gave the decedent effective control over the corporate dividend policy. According to the Commissioner, the decedent's ability to control the flow of dividends to the trust provided the decedent with the power to shift the beneficial enjoyment of trust income between the current trust beneficiaries and the remaindermen.130 This latter power falls within the scope of [sec] 2036(a)(2).131

The Court soundly rejected the Commissioner's argument. First, the Court explained that the "right" under [sec] 2036(a)(2) to designate the persons who shall possess or enjoy the income from property "connotes an ascertainable and legally enforceable power."132 The Court pointed out that any influence the decedent may have had over the corporate directors as the majority shareholder "was neither ascertainable nor legally enforceable and hence was not a right in any normal sense of that term."133 The Court further noted that a majority shareholder's influence over a corporation is limited by the shareholder's fiduciary duty not to misuse his power by promoting his personal interests at the expense of the corporation, as well as the fiduciary duty owed by the directors to promote the corporation's best interests.134

The Court went on to discredit the Commissioner's argument further on grounds that the Commissioner "misconceive[d] the realities of corporate life."135 The Court noted that, in a typical small business, there is no guarantee that funds will exist for distribution in the first place:

There is no reason to suppose that the three corporations controlled by Byrum were other than typical small businesses. The customary vicissitudes of such enterprises-bad years; product obsolescence; new competition; disastrous litigation; new, inhibiting Government regulations; even bankruptcy-prevent any certainty or predictability as to earnings or dividends. There is no assurance that a small corporation will have a flow of net earnings or that income earned will in fact be available for dividends. Thus, Byrum's alleged de facto "power to control the flow of dividends" to the trust was subject to business and economic variables over which he had little or no control.136

The Court stressed that even if funds were available for distribution, the directors of the closely held corporation would expose themselves to derivative suits if they subordinated the interests of the corporation to the will of the majority shareholder.137 To bolster this argument, the Court reiterated that in each of the corporations at issue, there was a substantial number of minority shareholders unrelated to the decedent who would have had a cause of action against the decedent and the corporate directors had they violated their fiduciary duties.138 Accordingly, the Court concluded that the decedent's ability to elect the board of directors was not tantamount to the power to regulate the flow of dividends to the trust.139

a. Assertion that Byrum is Distinguishable

The Byrum decision has been frequently cited for the proposition that discretionary powers possessed as a fiduciary of a business entity are exempt from the application of [sec] 2036(a).140 However, such a blanket statement is overbroad.141 The holding in Byrum cannot be read apart from the central facts of that case.142 Those facts include the participation of the closely held corporations at issue in the active conduct of a trade or business and the presence of substantial minority shareholders that were not related to the majority shareholder. For the reasons discussed below, the Kimbell court correctly determined that Byrum did not control the resolution of the case before it.143

The easiest basis for the Kimbell court to distinguish the partnership arrangement at issue from the facts of Byrum would have been the contractual negation of the general partner's fiduciary duty to the partnership and to the other partners. Yet this was not the sole basis upon which the Kimbell court rejected the estate's fiduciary duty argument, and it is by no means the only basis upon which to distinguish the Byrum case. Rather, Byrum is distinguishable from the facts of Kimbell on a number of grounds.

First, unlike the decedent in Byrum, the decedent in Kimbell possessed a legally enforceable right to determine the distribution policy of the partnership. In Byrum, the Supreme Court addressed the Commissioner's argument that the decedent's influence over the corporation as the controlling shareholder was a sufficient basis upon which to apply [sec] 2036(a) to the transferred stock. The Court rejected this argument, noting that the ability to influence the corporate directors in their determination of the distribution policy did not constitute an ascertainable or legally enforceable "right" contemplated by the statute.144 Yet in the context of limited partnerships, the general partner possesses more than a mere ability to influence others in the determination of the partnership distribution policy; rather, the general partner possesses the legal right to determine the timing and amounts of distributions of partnership income. Thus, those individuals who transfer property to a family limited partnership and designate themselves as general partner (or exercise authority on behalf of an entity designated as general partner) maintain control over the disposition of the income stream generated by the transferred property. This constitutes an ascertainable and legally enforceable right contemplated by the statute.

In Kimbell, the general partner was a manager-managed LLC of which the decedent's son served as sole manager. Although the decedent did not exercise the powers of the general partner through the LLC, she retained the legal capacity to do so. Through the provisions of the partnership agreement governing the removal and replacement of the general partner, the decedent retained the unilateral ability to remove the LLC as general partner and to name herself in its place. In this manner, the decedent retained the right to exercise the "sole discretion" over partnership distributions afforded to the general partner.145

Even though the decedent in Kimbell retained the ability to determine the partnership's distribution policy, the retained power still could be determined to fall outside the scope of [sec] 2036(a) if it were subject to such constraints that the power did not represent a discretionary right. In other words, the existence of constraints on the exercise of the power could cause the power to be viewed as an administrative power as opposed to a dispositive one. In Byrum, the Court placed significant emphasis on the business and economic variables affecting the ability of the corporate directors to declare dividends. After noting that there existed "no reason to suppose that three corporations controlled by Byrum were other than typical small businesses," the Court went on to list a number of "customary vicissitudes of such enterprises" that prevent any certainty or predictability as to earnings or dividends.146 In the event earnings did exist for possible distribution, the Court noted that the "first responsibility" of the board in setting the corporate dividend policy is "to safeguard corporate financial viability for the long term."147 The Court noted that upholding this responsibility could necessitate "the retention of sufficient earnings to assure adequate working capital as well as resources for retirement of debt, for replacement and modernization of plant and equipment, and for growth and expansion."148 Given the lack of predictability concerning earnings of a small business and the likely need of such earnings to be retained for business purposes, the Court concluded that the alleged ability of the decedent to control the flow of dividends from the corporations to the trusts he had created "misconceive[d] the realities of corporate life."149

The opinion in Kimbell does not describe the nature of the property transferred to the partnership, nor the business activity, if any, in which the partnership engaged. Yet assuming the partnership in Kimbell was similar to the vast majority of family limited partnerships formed in the twilight years of a decedent's lifetime, then the partnership likely constituted a holding vehicle for the decedent's investment assets. In the context of such partnerships, the economic variables and business considerations upon which the Court placed such emphasis in Byrum are lacking. Whereas there exists no guarantee that the small business enterprise will generate earnings subject to distribution, the general partner of a partnership whose principal assets consist of marketable securities certainly has the ability to adjust the investment allocation to produce a steady income stream if desired.150 In addition, because the typical family limited partnership does not operate a business enterprise, there exist no business-related considerations to serve as a limitation on the ability of the general partner to distribute the income generated by the partnership assets.151 The frequency with which family limited partnerships are liquidated shortly after the death of the principal contributor serves as evidence that these entities are not engaged in the conduct of a business activity.152 In the absence of business considerations to weigh in setting the distribution policy, the general partner's determination of whether to distribute or reinvest the income generated by the partnership assets amounts to a decision between permitting the current owners of the partnership to enjoy the income versus reinvesting such income for the benefit of future owners.153 This power is of a purely dispositive nature.

Last, the partnership at issue in Kimbell differed from the corporations addressed by the Supreme Court in Byrum in that the partnership owners consisted solely of members of the decedent's family. In Byrum, the Court placed considerable emphasis on the existence of a substantial number of minority shareholders unrelated to the decedent who would have possessed a cause of action against the directors of the corporation and the decedent as majority shareholder had they violated their fiduciary duties.154 No such potential third-party enforcers existed in Kimbell. Rather, the only interest in the partnership in Kimbell not owned by the decedent (a 50% interest in the LLC that served as the 1% general partner) was owned by the decedent's son and daughter-in-law. While the presence of unrelated owners in a family limited partnership may not be an absolute prerequisite to the availability of the Byrum defense to [sec] 2036,155 the absence of any party having an incentive to enforce the fiduciary duties of the general partner certainly undermines the argument that the mere existence of fiduciary duties constitutes a sufficient basis upon which to exempt the transferor's retained powers over partnership distributions from [sec] 2036.156 This is most likely what the Kimbell court was getting at when it questioned to whom the decedent, as 99% owner of the partnership, would have owed a fiduciary duty had such duty not been contractually negated under the partnership agreement.157

The Kimbell court's treatment of the estate's argument under Byrum suggests that courts may not be willing to accept Byrum as standing for the across-the-board proposition that [sec] 2036(a) does not apply to powers held as a fiduciary of a business entity. Rather, courts may look to the substance of the arrangement to determine if the fiduciary constraints on the general partner's authority over distributions of partnership income have sufficient substance to warrant exempting such powers from [sec] 2036(a). The approach of evaluating the applicability of Byrum on a case-by-case basis in the family limited partnership arena can be criticized for its lack of definitive boundaries. At what point does the general partner's fiduciary duty have insufficient substance to warrant the application of [sec] 2036(a) to the transferor's retained powers over partnership income? The lack of hard and fast rules in this area will make it more difficult for taxpayers to structure their business affairs to avoid untoward transfer tax consequences.158

While the lack of bright-line rules may be a drawback to the proposal, it is not substantial. First, it should not be too difficult to distinguish those closely held entities that constitute what the Byrum court referred to as "typical small businesses"159 from those investment partnerships that exist as vehicles designed to facilitate the transmission of wealth from one family member to another in the most tax-advantaged manner. Limited partnerships formed solely for estate-planning purposes tend to jump off the page as such. Furthermore, to the extent that the courts would be forced to draw the line in close cases, in all likelihood they would err to the taxpayer's benefit. Courts likely would continue to apply the Byrum holding given any hint of a legitimate business operation being conducted by the entity, and would decline to apply Byrum only in situations in which the taxpayer is employing the partnership form solely for purposes of depressing transfer tax values. Finally, if a limited interpretation of the Byrum decision would give pause to those taxpayers who would otherwise dump liquid assets into a partnership and then claim valuation discounts upwards of 50-60% from net asset value, that may not be a bad thing altogether.160

b. Assertion that Byrum was Overruled

The Kimbell court's statement that Byrum had been overruled through the enactment of [sec] 2036(b) is somewhat misleading in that it is overbroad. It is true that, through the enactment of [sec] 2036(b) as part of the Tax Reform Act of 1976,161 Congress legislatively overruled the Byrum decision in certain situations in which a taxpayer transfers voting stock in a corporation and retains the right to vote the stock.162 Nonetheless, it is widely understood that Byrum remains valid precedent to the extent not expressly superseded by statute.163 In fact, not that long ago the Service agreed that Byrum prevented the application of [sec] 2036(a)(2) to the powers of a general partner in a closely held limited partnership.164 Given that the Kimbell court determined that Byrum was distinguishable on its facts, its overbroad description of the effect of [sec] 2036(b) on the Byrum precedent may be inconsequential.

V. POTENTIAL IMPACT OF KIMBELL DECISION

If the Kimbell opinion is upheld on appeal and followed by other courts, the decision could prove to be a powerful decision for the government. The reason is simple. Inclusion under [sec] 2036(a)(1) based on the decedent's continued use of partnership property can be avoided by those taxpayers who respect the separate nature of the partnership and retain sufficient assets in their own names to ensure that potentially problematic distributions from the partnership are not made. On the other hand, inclusion under [sec] 2036(a)(1) and (a)(2) based on the decedent's authority over distributions of partnership income cannot be so easily circumvented. For many individuals, the limited partnership arrangement is palatable only because it enables the transferor to retain control over the assets contributed to the partnership. In this regard, the level of participation in decisions regarding the distribution of partnership income sufficient to trigger the application of [sec] 2036(a) is quite minimal. Because [sec] 2036(a) encompasses powers held by the decedent that could be exercised only in conjunction with another person or persons,165 a transferor capitalizing a family limited partnership cannot avoid the application of that section by serving as just one of several general partners. In addition, the fact that the other general partners may have an interest adverse to the transferor's exercise of her powers over partnership income is immaterial.166 Accordingly, if the transferor retains any right to participate in the determination of the timing and amounts of income distributions from the partnership, the transferor will be exposed to having the assets transferred to the partnership pulled back into her gross estate. In short, if the Service has continued success in applying [sec] 2036(a)(1) and (a)(2) to family limited partnerships based on the decedent's retained influence over distributions of partnership income, many partnerships previously considered exempt from [sec] 2036(a) will be caught in its net.

Yet even if Kimbell becomes the law of the land, family limited partnerships will still offer significant transfer tax advantages to certain taxpayers. To start, those partnerships that conduct an actual business operation and are not merely holding vehicles for the decedent's investment assets will still be able to enjoy the protection that Byrum offers from [sec] 2036(a). For those partnerships not falling under the Byrum umbrella, [sec] 2036(a) will still not apply if the transferor is content to relinquish authority over distributions of partnership income.167 Accordingly, those taxpayers who otherwise would be comfortable making an outright gift could utilize a family limited partnership to depress intentionally the value of the transferred property. Furthermore, even if the transferor capitalizes a family limited partnership and retains authority over partnership distributions otherwise sufficient to trigger [sec] 2036(a), that section will have no effect if the power is released prior to the decedent's death. (However, if the transferor releases the power within the three-year period preceding her death, [sec] 2035(a) would operate to pull partnership property back into the gross estate.168) Thus, the application of [sec] 2036(a) to a decedent's retained powers over partnership income would not constitute the death-knell of limited partnerships as an estate-planning tool altogether. But it would signal the end of the ability of taxpayers to have their cake and eat it too by retaining control over transferred property while subjecting only their beneficial interest (valued on a discounted basis) to estate tax.

VI. APPLICATION OF SECTION 2036 TO ESTATE OF STRANGI

It will be interesting to see if the Tax Court reaches conclusions similar to that of the district court in Kimbell in deciding the Estate of Strangi case on remand. The two cases certainly bear a strong factual resemblance. The decedent, Albert Strangi, was a self-made millionaire in failing health when his son-in-law, an attorney with estate-planning experience, assumed responsibility of his financial affairs pursuant to an existing power of attorney.169 The day after attending a seminar on the tax benefits offered by the use of family limited partnerships, the son-in-law, Michael Gulig (Gulig), formed two entities: SFLP, a Texas limited partnership, and Stranco, Inc. (Stranco), a Texas corporation.170 Stranco was designated as the general partner of SFLP. Pursuant to the partnership agreement, it possessed sole authority over the management of SFLP's business affairs.171

The decedent contributed assets worth $9,876,929 (mostly in the form of cash and securities) to SFLP in exchange for a 99% interest therein as limited partner.172 The decedent and his four children also capitalized Stranco, which transferred approximately $100,000 to SFLP in exchange for a 1% general partner interest.173 The decedent owned 47% of Stranco's stock, and the decedent's children equally held the remaining 53%, except for 100 shares which the children donated to a local community college.174

To round things out, the decedent and his children, as directors of Stranco, executed a unanimous consent to employ Gulig to manage the day-to-day affairs of Stranco and SFLP.175

Gulig handled all matters related to the formation, funding, and operation of SFLP and Stranco.176 During this time period, the decedent required continuous home health care, as he suffered from a brain disorder.177 Roughly two months after SFLP was formed, the decedent died of cancer.178

A. Inclusion Based on Retained Beneficial Enjoyment of Partnership Property

The following comments in the original Tax Court opinion in Estate of Strangi indicate that the court may be receptive to including the partnership assets in the decedent's gross estate under [sec] 2036(a): "The actual control exercised by Gulig, combined with the 99-percent limited partnership interest in SFLP and the 47-percent interest in Stranco, suggest the possibility of including the property transferred to the partnership in decedent's estate under section 2036."179 Furthermore, in rejecting the Commissioner's gift-upon-formation argument, the Tax Court stated that "we do not believe that decedent gave up control over the assets."180

By citing the control possessed by Gulig together with the decedent's 99.47% beneficial interest in the partnership, the court appears to imply that the decedent stood in the same position before and after he transferred the bulk of his property to SFLP. In this regard, the court in Estate of Reichardt had previously stated that "if a decedent's relationship to assets remains the same after a transfer as it was before a transfer, the value of the decedent's assets may be included in the decedent's gross estate," citing [sec] 2036(a)(1).181 Thus, perhaps the Tax Court was hinting at including the partnership property in the decedent's estate based on the decedent's retained beneficial enjoyment of the transferred property. This argument is strengthened by the fact that the partnership made a distribution on behalf of the decedent for his personal needs. When the decedent's caretaker injured her back necessitating surgery, SFLP paid for the cost of the procedure.182 The decedent's personal use of partnership funds certainly would support a finding that an implied understanding existed among the parties that the decedent would retain the economic benefit and enjoyment of the property transferred to the partnership. If the court were to decide the case on this basis, then Estate of Strangi would simply become another case in the Estate of Reichardt, Estate of Harper, and Estate of Thompson chain.

B. Inclusion Based on Control Over Beneficial Enjoyment of Partnership Property

Perhaps there exists a basis for the Service to argue for inclusion in the decedent's gross estate not only by reason of his retained beneficial enjoyment of the transferred property, but also because of the decedent's retained authority over distributions of income generated by the partnership assets. Stated another way, perhaps the Service could make the same argument that the government successfully made in Kimbell. For the reasons described above, a victory on this theory would go a long way for the Service in its ongoing struggle against the use of family limited partnerships to depress transfer tax valuation.

Unlike Kimbell, it is not clear whether the decedent in Estate of Strangi possessed the power as 99% limited partner to remove the corporation as general partner and name a replacement. Yet such removal authority is not needed in Estate of Strangi, because the decedent actually possessed the requisite power over partnership income distributions at the time of his death. Although the opinion does not indicate whether decision-making authority over distributions from the partnership remained with the board of directors of the general partner or whether such authority was delegated to Gulig as the appointed manager of the day-to-day affairs of Stranco and SFLP, a prohibited [sec] 203 6(a) power can be found in either case.

Pursuant to the SFLP's partnership agreement, Stranco possessed the sole authority to conduct the business affairs of SFLP without the concurrence of any other partner. The decedent and his four children were named as the directors of Stranco. Accordingly, assuming that Stranco possessed sole authority over the timing and amount of distributions of income from SFLP, the decedent's right to vote on such decisions as a director satisfies the requirements of a prohibited power under [sec] 2036(a). As previously mentioned, the regulations under [sec] 2036(a) make clear that it is immaterial if the power was exercisable only in conjunction with other persons, even if those other persons have an interest adverse to the exercise of the power.183 Thus, the Service could argue that [sec] 2036(a) operates based on the structure of the SFLP partnership arrangement to include in the decedent's gross estate those assets that he transferred to the partnership.

On the other hand, if authority over distributions of partnership income had been delegated to Gulig in his role as managing agent of Stranco and SFLP, then such powers should be treated as having been retained by the decedent. This attribution is both logical and appropriate. At the time the partnership was formed, Gulig had assumed responsibility for the decedent's financial affairs pursuant to a power of attorney. Pursuant to this power of attorney, Gulig formed SFLP and Stranco on the decedent's behalf. Similarly, Gulig used the power of attorney to capitalize the partnership almost exclusively with the decedent's assets. At the time these events were taking place, the decedent likely was incompetent as he suffered from a brain disorder and required 24-hour home health care. Judge Beghe in his separate dissenting opinion, articulated the basis for attributing the powers held by Gulig in the partnership arrangement to the decedent:

Against the grain of the majority's conclusions that the SFLP arrangements were neither a factual nor a substantive sham, I would observe that another "conceivable basis for concluding that decedent retained control over the assets that he contributed to the partnership" are the multiple roles played by Mr. Gulig, who had decedent's power of attorney and caused himself to be employed by Stranco to manage the affairs of SFLP, and the tacit understanding of the other family members that he would look out for their interests.184

Accordingly, Gulig's role in the partnership cannot be viewed as that of a disinterested third party. Rather, his role was that of the decedent's agent.

Thus, whether authority over partnership income distributions remained with the board or was delegated to Gulig, the decedent retained control over the timing and amount of partnership income distributions. In this manner, the decedent ensured himself that he could benefit from the income generated by the property he transferred to the partnership (implicating [sec] 2036(a)(1)), while also possessing the power to determine if and when the other beneficial owners of the entity would benefit from such income (implicating [sec] 2036(a)(2)).

Because the decedent's powers over partnership income were possessed in a fiduciary capacity, any argument that such powers trigger inclusion under [sec] 2036(a) must address the Supreme Court's decision in Byrum. Yet just as the facts that led to the Supreme Court's holding in Byrum were absent in Kimbell, such facts are also lacking in the partnership arrangement at issue in Estate of Strangi. The corporations at issue in Byrum were actual operating businesses that would have had legitimate business and economic considerations to weigh in determining the corporate dividend policy.185 The determination of the timing and amount of dividends therefore necessitated taking into account something more than the shareholders' need for income. The partnership at issue in Estate of Strangi, however, was a mere holding vehicle for the decedent's securities and other investment assets. There were no business considerations to weigh in determining the timing and amount of distributions from the partnership. Rather, the decision came down to whether the decedent needed current funds or was content to leave them invested.

The partnership at issue in Estate of Strangi differs from the corporations at issue in Byrum in another significant way: There were no unrelated equity holders of SFLP to enforce the fiduciary obligations. The Supreme Court in Byrum emphasized the existence of a substantial number of unrelated minority shareholders who would have had a cause of action against the majority shareholder and the board of directors had they abrogated their fiduciary duties to the corporation. The partnership in Estate of Strangi, on the other hand, was owned 99% by the decedent and 1% by Stranco. Stranco, in turn, was owned by the decedent and his children, except for 100 shares that the children had contributed to a local community college. Thus, considering that the decedent and his family members controlled Stranco, there were no unrelated equity owners in SFLP. While the community college was an unrelated minority shareholder in Stranco, it is doubtful that the college would have balked at any purported violation by the decedent of his fiduciary duty to the partnership-particularly since the college received its interest in Stranco through a charitable donation and was likely anticipating a liquidating distribution following the decedent's death.186 So not only was the decedent unconstrained by business considerations in determining SFLP's income distribution policy, he faced no constraints in the way of potential challenges from minority owners regarding his determination of such policy. In short, the fiduciary duty that the estate may attempt to invoke in the Estate of Strangi existed in name only. Accordingly, Byrum should not prevent the Service from successfully arguing that the decedent's retained powers over the income generated from the assets he transferred to the partnership result in such assets being included in his gross estate under [sec] 2036(a).

VII. CONCLUSION

The decision by the district court in Kimbell presents the Service with a potentially significant victory in its ongoing battle against family limited partnerships. However, at this point it is not clear whether the decision will have any wide-ranging impact. Although the district court's conclusions regarding the application of [sec] 2036(a)(1) and (a)(2) as well as the nonapplicability of Byrum appear correct, the opinion could have benefited from a more detailed analysis of the issues. Given that there is approximately $800,000 at stake, the case surely will be appealed to the Fifth Circuit. Thus, the possibility exists that the district court's opinion in Kimbell will amount to nothing more than a flash in the pan for the government.

Nonetheless, the government's argument for including the assets transferred to a family limited partnership under [sec] 2036(a)(1) and (a)(2) based on the decedent's retained control over partnership distributions has a sound legal foundation. The argument certainly would gain a good deal of traction if the Tax Court were to apply it on remand in Estate of Strangi. Given that [sec] 2036(a) would operate to include the date-of-death value of all property transferred to the partnership by the decedent, what once was the Service's best-case scenario in its struggle against family limited partnerships-including in the gross estate the value of the decedent's beneficial interest in the partnership at no discount-could suddenly become a reasonable settlement position.187 In that case, the constant flow of cases before the Tax Court concerning minority and lack-of-marketability discounts likely would slow to a trickle.

1 See, e.g., Church v. United States, 85 A.F.T.R.2d 2000-804 (W.D. Tex. 2000) (rejecting the Commissioner's business purpose argument, gift-upon-formation argument, and [sec] 2703 argument), aff'd, 268 F.3d 1063 (5th Cir. 2001); Knight v. Commissioner, 115 T.C. 506 (2000) (rejecting the Commissioner's economic substance argument); Estate of Strangi v. Commissioner, 115 T.C. 478 (2000) (rejecting the Commissioner's economic substance argument, [sec] 2703 argument, and gift-upon-formation argument), aff'd in part and rev'din part, 293 F.3d 279 (5th Cir. 2002); Kerr v. Commissioner, 113 T.C. 449 (1999) (rejecting the Commissioner's [sec] 2704(b) argument), aff'd, 292 F.3d 490 (5th Cir. 2002).

2 115 T.C. 478 (2000).

3 115 T.C. 506 (2000).

4 See Estate of Strangi, 115 T.C. at 484; Knight, 115 T.C. at 512-13.

5 See Estate of Strangi, 115 T.C. at 486-87; Knight, 115 T.C. at 513-14.

6 In Estate of Strangi, the Tax Court explained its holding on this issue as follows: [The partnership] was validly formed under State law. The formalities were followed, and the proverbial "i's were dotted" and "t's were crossed". The partnership, as a legal matter, changed the relationships between decedent and his heirs and decedent and actual and potential creditors. Regardless of subjective intentions, the partnership had sufficient substance to be recognized for tax purposes. Its existence would not be disregarded by potential purchasers of decedent's assets, and we do not disregard it in this case.

Estate of Strangi, 115 T.C. at 486-87.

7 Id at 486.

8 See id.

9 See Estate of Strangi v. Commissioner, 293 F.3d 279 (5th Cir. 2002).

10 Id. at 281.

11 See id. at 282. While the Fifth Circuit left some room for the Tax Court to maintain its denial of the Commissioner's motion to amend, the tone of the appellate opinion certainly suggests that the court intended for the [sec] 2036 argument to be addressed on remand. See id.

12 244 F. Supp. 2d 700 (N.D. Tex. 2003).

13 See id., at 705.

14 The Kimbell decision has generated a considerable amount of commentary, most of it negative. See Owen G. Fiore & John W. Prokey, The 2036 Threat to Valuation Discounts, TR. & EST., Mar. 2003, at 40; Jerry A. Kasner, Byrum is Alive and Well!, 99 TAX NOTES 374 (2003); J. Joseph Korpics, For Whom Does Kimbell Toll-Does Section 2036(a)(2) Pose a New Danger to FLP?, 98 J. TAX'N 162 (2003); Burgess J.W. Raby & William L. Raby, Section 2036 and the Family Limited Partnership, 98 TAX NOTES 1241 (2003). But see Brant J. Hellwig, Kimbell: Is the Party Over for Family Limited Partnerships?, 98 TAX NOTES 1871 (2003).

15 408 U.S. 125(1972).

16 For a thorough explanation of the benefits and potential pitfalls associated with the use of closely held limited partnerships for estate-planning purposes, see S. Stacy Eastland, The Art of Making Uncle Sam Your Assignee Instead of Your Senior Partner: The Use of Partnerships in Estate Planning, SG090 A.L.I.-A.B.A. 899 (2002).

17 See I.R.C. [sec][sec] 2036(a)(2), 2038. Yet even these rules have a significant exception. If the transferor retains no beneficial interest in the trust and limits her authority to make distributions to an ascertainable standard, then the transferor will not be considered as retaining sufficient influence over trust distributions to trigger inclusion in the gross estate under [sec] 2036(a)(2) or [sec] 2038. See Jennings v. Smith, 161 F.2d 74, 77-78 (2d Cir. 1947); see also Leopold v. United States, 510 F.2d 617, 620 (9th Cir. 1975); United States v. Powell, 307 F.2d 821, 826-28 (10th Cir. 1962); Estate of Cutter v. Commissioner, 62 T.C. 351, 355 (1974); Estate of Pardee v. Commissioner, 49 T.C. 140, 143-46 (1967); Estate of Wier v. Commissioner, 17 T.C. 409, 418 (1951); Commissioner v. Estate of Wilson, 13 T.C. 869, 872-73 (1949), aff'd, 187 F.2d 145 (3d Cir. 1951); Estate of Klafter v. Commissioner, T.C. Memo. 1973-230, 32 T.C.M. (CCH) 1088; Rev. Rul. 73-143, 1973-1 C.B. 407. An example of an ascertainable standard is where the trustee's ability to distribute trust income to the beneficiaries is limited to those distributions necessary for the health, education, support or maintenance of the recipient. The justification for treating dispositive powers subject to an ascertainable standard as falling outside the scope of [sec] 2036(a)(2) and [sec] 2038 is that, because the standard could be enforced by a court in equity, the power is not truly discretionary.

18 Given the definition of a partnership for state law purposes, there must be at least two partners. See UNIF. P'SHIP ACT (1997) [sec] 202(a), 6 U.L.A. 92 (2001). Thus, when the estate planning clients are a married couple, the two spouses can initially capitalize the partnership. If the principal contributor is not married or does not wish to involve her spouse in the partnership, then the principal contributor can solicit contributions (sometimes nominal) from other family members in order to create the partnership. If all else fails, the estate-planning client can create a corporation or LLC to serve as the second party necessary to form the partnership.

19 It is imperative that the gratuitous transfer takes place through an assignment of an equity interest in the partnership, as opposed to a transfer of property to the partnership that indirectly enhances the value of each partner's capital account. In the latter situation, the transfer constitutes an indirect gift to the equity owners whose interests are enhanced on account of the transfer. See Treas. Reg. [sec] 25.2511-l(h)(l); see also Kincaid v. United States, 682 F.2d 1220, 1224-25 (5th Cir. 1982) (transfer of ranch to a corporation by a 34% shareholder constituted taxable gifts totaling 64% of the value of the ranch in excess of the value of the stock received in exchange); Heringer v. Commissioner, 235 F.2d 149,151 (9th Cir. 1956) (transfer of land to a corporation in which the transferors owned a 40% interest constituted a taxable gift to the other shareholders of 60% of the value of the land); Shepherd v. Commissioner, 115 T.C. 376, 388-90 (2000), aff'd, 283 F.3d 1258 (5th Cir. 2002) (value of property transferred to a partnership by a 50% partner constituted a taxable gift of a 25% fractional interest in the property to each of the two other partners).

Note that the Tax Court in Shepherd gave the taxpayer somewhat of a break by characterizing the indirect gift to the other 25% partners as the transfer of an undivided 25% fractional interest in the property contributed to the partnership. See Shepherd, 115 T.C. at 389. Thus, the court treated the transaction as if the donor had first given an undivided fractional interest in the property to the other partners, followed by a contribution by all fractional owners of the property to the partnership. The court therefore allowed the donor to value each gift using a fractional interest discount. See id. at 401-02. Yet the gratuitous transfer that indirectly benefited the other partners consisted of the donor's transferring undivided ownership of the property to the partnership. The appropriateness of applying a fractional interest discount in such case therefore is suspect. The gratuitous transfers at issue in Heringer and Kincaid are similar to those of Shepherd, and a fractional interest discount was not applied in either of the former cases. This point was made by Judge Ruwe in his separate opinion. See id. at 409-11 (Ruwe, J., concurring in part and dissenting in part).

20 Eastland, supra note 16, at 913.

21 Perhaps the only aspect of a discretionary trust that would be difficult to replicate with a limited partnership is the ability of the trustee to make non-uniform distributions to one or more beneficiaries within a defined class. It would not appear possible for a general partner to declare the amount of an operating distribution on a partner-by-partner basis; rather, one would assume that operating distributions would be made to partners with regard to their respective interests in the partnership. Yet perhaps even this obstacle could be avoided by the creation of multiple classes of partnership interests, which would enable the general partner to declare distributions of partnership income to some but not all partners.

22 Specifically, the value of property subject to tax is defined as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." Treas. Reg. [sec] 20.2031-1(b) (estate tax valuation); [sec] 25.2512-1 (gift tax valuation).

At one point, the government argued that the application of the transfer tax valuation standard should consider the actual recipient of the property as the "willing seller." For example, in Estate of Bright v. United States, 658 F.2d 999 (5th Cir. 1981), the decedent died owning a one-half community property interest in a 55% block of corporate stock. The decedent's 27.5% interest in the stock passed to her husband as trustee of a testamentary trust; the other 27.5% was owned by her husband individually. See id. at 1000. The government argued that in valuing the decedent's 27.5% interest that was included in her gross estate, the likelihood that the husband would only sell such interest together with his own 27.5% block (to obtain a control premium) should be considered. See id. at 1002. Under this argument, some portion of the control premium would be included in valuing the 27.5% stock interest included in the decedent's gross estate. The Fifth Circuit rejected this argument, concluding that this type of family attribution was inappropriate for transfer tax valuation standards. See id. at 1006. The court clarified that the "willing seller" under the transfer tax valuation regulations constituted a hypothetical third party, as opposed to the actual transferor or transferee. See id.; see also Propstra v. United States, 680 F.2d 1248, 1251-52 (9th Cir. 1248); Estate of Andrews v. Commissioner, 79 T.C. 938, 953-55 (1982) (each following Estate of Bright for the proposition that the "willing seller" under the valuation regulations constitutes a hypothetical third party as opposed to the decedent, the decedent's estate, or the ultimate beneficiary of the property). In Rev. Rul. 93-12, 1993-1 C.B. 202, the Service acquiesced to the holding in Estate of Bright. That ruling held that a transferor owning 100% of the stock of a corporation who transferred a 20% interest to each of his five children could value each gift with the application of a minority discount.

23 For a thorough discussion of the use of valuation discounts to reduce federal estate and gift taxes, see James R. Repetti, Minority Discounts: The Alchemy in Estate and Gift Taxation, 50 TAX L. REV. 415 (1995).

24 This ignores any psychic pleasure that the individual may derive from being associated with any of the companies in which she owns stock or from simply being a shareholder.

25 See Eastland, supra note 16, at 924 (explaining that it is likely that at least one member of the cohesive family unit would vote to exclude the transferee from the partnership).

26 See UNIF. LTD. P'SHIP ACT (1976, amended 1985) [sec] 702, 6A U.L.A. 230 (1995) (providing that an assignee of a partnership interest is entitled only to the distributions that the assignor would have received).

27 Note that in the case of partnerships, a minority-interest discount can be taken even though the interest being valued represents a majority of the beneficial ownership of the entity.

28 While objective transfer tax value has been diminished, the loss of such value is not on account of a transfer of property to someone else. Although the existence of a taxable gift does not depend on being able to pinpoint the exact identity of the donee, see Treas. Reg. [sec] 25.2511-2(a), surely there must be some other party that receives an interest in the transferred property before there is a "transfer of property by gift" within the meaning of [sec] 2501(a)(1). For this reason, the Commissioner's argument that the loss of transfer tax value upon the creation of the partnership constitutes a taxable gift has not been well received. See, e.g.. Estate of Jones v. Commissioner, 116 T.C. 121 (2001); Estate of Strangi, 115; T.C. at 489-90.

29 In his dissenting opinion in Estate of Strangi, Judge Beghe argued that the step-transaction doctrine should be applied to include in the decedent's gross estate the fair market value of the property that the decedent transferred to the partnership, which was ultimately distributed to the decedent's intended beneficiaries. See Estate of Strangi, 115 T.C. at 501-03 (Beghe, J., dissenting). Under this analysis, the formation and liquidation of the partnership constitute the integral steps that would be collapsed, leaving as the subject of the testamentary transfer the property titled in the name of the partnership. See id.

30 See, e.g., Estate of Jones, 116 T.C. at 139 (40% combined discount); Estate of Strangi, 115 T.C. at 491-93 (31% combined discount), aff'd in part and rev'd in part, 293 F.3d 279 (5th Cir. 2002); Estate of Dailey v. Commissioner, T.C. Memo. 2001-263, 82 T.C.M. (CCH) 710, 712 (40% combined discount); Estate of Weinberg v. Commissioner, T.C. Memo. 2000-51, 80 T.C.M. (CCH) 1507, 1517 (approximately 50% combined discount).

31 United States v. Estate of Grace, 395 U.S. 316, 320 (1969).

32 114T.C. 144(2000).

33 T.C. Memo. 2002-121, 83 T.C.M. (CCH) 1641 (2002).

34 T.C. Memo. 2002-246, 84 T.C.M. (CCH) 374 (2002).

35 Estate of Reichardt, 114 T.C. at 147-48. The transferred assets consisted of various tracts of real property, investment accounts, cash, and a note receivable. See id. The Commissioner estimated that the property transferred by the decedent to the partnership constituted 98% of the value of all of his property, and the court found this estimate to be reasonable. See id. at 153 n.7.

36 See id. at 147-48, 150.

37 See id. at 147.

38 See id. at 149, 152.

39 See id. at 150.

40 See id. Based on the date-of-death value of the partnership property as determined by the Tax Court (approx. $1.6 million), it appears that the decedent's estate valued his retained partnership interest by using a combined valuation discount in the neighborhood of 40%. See id at 159.

41 See id at 145.

42 See id. at 150.

43 See id.

44 See id. at 149.

45 See id. at 148.

46 The accountant brought in by the estate to clean up the books after the decedent died assumed that the differences between the general ledger and cash on hand of $8,116 in 1993 and $13,507 in 1994 resulted from the decedent's use of partnership funds for his personal expenses. See id. at 149.

47 See id. at 153. The estate argued that the decedent's fiduciary duty as a general partner and trustee precluded him from retaining the beneficial enjoyment of the property transferred to the partnership. See id. The court quickly dismissed this argument after noting that the decedent's fiduciary duties did not actually prevent him from utilizing partnership property as if it were his own, and that the children took no action to curtail the decedent's actions in this regard. See id. at 152.

48 See Estate of Maxwell, 3 F.3d 591, 593 (2d Cir. 1993); Guynn v. United States, 437 F.2d 1148, 1150 (4th Cir. 1971); Estate of Reichardt, 114 T.C. at 151; Estate of Rapelje v. Commissioner, 73 T.C. 82, 86 (1979); see also Treas. Reg. [sec] 20.2036-1(a) (last sentence). Once the Commissioner alleges the existence of an implied agreement among the parties as to the decedent's retained beneficial enjoyment of the property, the decedent's estate bears the burden of proving that such an agreement did not exist. See Estate of Skinner v. United States, 316 F.2d 517, 520 (3d Cir. 1963); Estate of Reichardt, 114 T.C. at 151-52; Estate of Rapelie, 73 T.C. at 86.

49 See Estate of Reichardt, 114 T.C. at 159.

50 See Estate of Harper, 83 T.C.M. (CCH) at 1642.

51 See id.

52 See id. at 1644.

53 See id.

54 See id. at 1645.

55 See id.

56 See id.

57 See id.

58 See id. at 1649-50. Other cases in which the commingling of partnership assets with personal accounts led to inclusion under [sec] 2036(a)(1) include Estate of Reichardt, and Estate of Schauerhamer v. Commissioner, T.C. Memo. 1997-242, 73 T.C.M. (CCH) 2855 (1997).

59 Estate of Harper, 83 T.C.M. (CCH) at 1650-51. Oddly enough, the Tax Court opinion utilized distributions to or for the benefit of the decedent's estate as a basis for determining that the decedent retained beneficial ownership of the property transferred to the partnership: "Similarly significant is the evidence that certain of the distributions to the Trust were linked to a contemporaneous expense of decedent personally or of his estate. . . . This evidence buttresses the inference that decedent and his estate had ready access to partnership cash when needed." Id. at 1650. The relevance of post-mortem distributions from the partnership to the decedent's estate under [sec] 2036(a)(1), however, is questionable. The statute makes clear that the period for which the transferor must retain beneficial enjoyment is "for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death." I.R.C. [sec] 2036(a).

60 See Estate of Harper, 83 T.C.M. (CCH) at 1651-52. The Tax Court concluded its discussion of the testamentary nature of the arrangement as follows:

The fact that the contributed property constituted the majority of the decedent's assets, including nearly all of his investments, is also not at odds with what one would expect to be the prime concern of an estate plan. We additionally take note of decedent's advanced age, serious health conditions, and experience as an attorney.

In summary, we are satisfied that [the partnership] was created principally as an alternate testamentary vehicle to the Trust.

Id. at 1652. The court's use of the testamentary nature of the arrangement as a basis for applying [sec] 2036(a)(1) is interesting, because the concept of testamentary character is nowhere mentioned in the statute. Rather, the relevance of the testamentary nature of the arrangement stems from the Supreme Court's description of the purpose of [sec] 2036 as articulated in Estate of Grace, 395 U.S. at 320: "The general purpose of [the statute] was to include in a decedent's gross estate transfers that are essentially testamentary-i.e., transfers which leave the transferor a significant interest in or control over the property transferred to the partnership." Given that the statutory requirements of [sec] 2036(a)(1) and (a)(2) describe two particular types of testamentary transfers, the independent significance of the testamentary nature of the arrangement as a basis for determining that transferred property is included in the transferor's gross estate under [sec] 2036(a) is questionable-particularly because the range of testamentary transfers is far broader than the range of transfers satisfying the elements of [sec] 2036(a). If nothing else, the Tax Court's frequent use of the above quote from Estate of Grace indicates that it is not interested in interpreting the prerequisites to inclusion under [sec] 2036(a) restrictively.

61 See Estate of Harper, 83 T.C.M. (CCH) at 1652. Judge Nims authored the opinion in this case. As a technical matter, a memorandum opinion issued by a particular judge of the Tax Court does not speak for and therefore does not bind the entire Tax Court. In contrast, division opinions authored by a single judge that are published in the official Tax Court Reporter are binding precedent on all of the divisions of the Tax Court. That being said, judges of the Tax Court do not treat prior memorandum decisions lightly, and memorandum decisions are often cited as precedent.

62 84 T.C.M. 374 (2002). Judge Jacobs authored the memorandum opinion in Estate of Thompson.

63 See id. at 376-79.

64 See id. at 375, 377-78.

65 See id. at 377-78, 386.

66 See id. at 379.

67 See id.

68 See id.

69 See id. at 380.

70 See id.

71 See id. at 386. It is worth mentioning that the Commissioner bore the burden of proof with respect to its [sec] 2036 argument in Estate of Thompson because the notice of deficiency only sought to disallow the 40% combined minority-interest and lack-of-marketability discount as opposed to seeking inclusion in the gross estate of all property transferred to the partnership by the decedent. See id. at 384-85; see also TAX CT. R. 142(a) (stating that the respondent shall bear the burden of proof with respect to new matters raised in the answer).

72 See Estate of Thompson, 84 T.C.M. (CCH) at 389. The Court hinted in a footnote that it thought [sec] 2036(a)(2) may also constitute a basis for inclusion in this case. See id. at 387 n.11. Nonetheless, because the parties limited their arguments to [sec] 2036(a)(1) and because the court found [sec] 2036(a)(1) to be applicable, the court concluded that "we leave to another day the application of sec. 2036(a)(2) to family limited partnerships such as those existing in this case." Id.

73 Estate of Reichardt, 114 T.C. at 152.

74 See id. The Tax Court noted that if a decedent's relationship to assets remains the same after a transfer as it was before a transfer, the value of the assets may be included in the decedent's gross estate. See id. (citing I.R.C. [sec] 2036(a)(1); Guynn, 437 F.2d at 1150; Estate of Hendry v. Commissioner, 62 T.C. 861, 874 (1974); Estate of Schauerhamer, 73 T.C.M. (CCH) at 2858).

75 See Old Colony Trust Co. v. United States, 423 F.2d 601, 603 (1st Cir. 1970); Estate of King v. Commissioner, 37 T.C. 973, 980 (1962).

76 This is the case even though A can significantly affect the relative interests of B and C through her authority over the manner in which the trust property is invested. For instance, if A sought to diminish B's interest in the trust to favor C, A could do so by investing the trust property in growth stocks that pay little if any current dividends. Of course, such an investment strategy may invite a lawsuit from B asserting that A is in breach of her fiduciary duty to fairly balance the interests of the income beneficiary and remainderman.

77 Perhaps this result can be avoided if the limited partnership acts and behaves like a business enterprise by charging fair market rent for the use of the beach house, even to family members. In that case, the partnership could potentially avail itself of the Byrum defense against the application of [sec] 2036(a) to the powers retained by a transferor over distributions from a business entity. For a discussion of the Byrum decision, see text accompanying infra notes 120-39.

78 See Commissioner v. Church's Estate, 335 U.S. 632, 645 (1949) (the decedent "retained for himself until death a most valuable property right in these stocks-the right to get and to spend their income."); Estate of McNichol v. Commissioner, 265 F.2d 667, 671 (3d Cir. 1959) ("[O]ne of the most valuable incidents of income-producing real estate is the rent which it yields."); Estate of Hendry, 62 T.C. at 873 (stating that the retention of the income stream from transferred property constitutes "very clear evidence that the decedent did indeed retain 'possession or enjoyment.'").

79 244 F. Supp. 2d 700 (N.D. Tex. 2003).

80 See id. at 702.

81 The decedent's interest actually was owned by her revocable trust. For simplification purposes, this Article will treat all property titled in the decedent's revocable trust as owned by her personally.

82 See id.

83 See id

84 See id.

85 See id.

86 See id. at 703.

87 See id. at 702.

88 See id.

89 Id. at 705. The court noted that section 5.5 of the partnership agreement placed certain restrictions on distributions by the general partner, but there is no further indication of what those restrictions entailed. See id. n.5.

90 See id. at 705.

91 See id.

92 Id. at 705-06.

93 See id. at 703.

94 Id. (citing Estate of Harper, 83 T.C.M. (CCH) 1641). The Tax Court in Estate of Harper stated that "The general purpose of [[sec] 2036] is 'to include in a decedent's gross estate transfers that are essentially testamentary' in nature." 83 T.C.M. (CCH) at 1647 (quoting Ray v. United States, 762 F.2d 1361, 1362 (9th Cir. 1985)). The Kimbell court's description of the purpose of [sec] 2036(a) is overbroad, because making outright transfers of one's property during life is a perfectly legitimate way to avoid the estate tax. Of course, avoiding the estate tax in this manner comes at the expense of potentially triggering gift tax.

95 Kimbell, 244 F. Supp. 2d at 703.

96 This description of the operation of [sec] 2036(a) is nonconventional because the existence of the circumstances under subsections (a)(1) and (a)(2) generally is viewed as a prerequisite to inclusion under [sec] 2036.

97 See id. at 704-05. The court relied heavily upon the Tax Court's resolution of this issue in Estate of Harper, 83 T.C.M. (CCH) 1641. The Tax Court reached a similar conclusion in Estate of Reichardt, 114 T.C. at 155-56, and Estate of Thompson, 84 T.C.M. (CCH) 374.

98 See Kimbell, 244 F. Supp. 2d at 703. Again, the conditions set forth in subsections (a)(1) and (a)(2) of [sec] 2036 are properly interpreted as prerequisites to the statute's operating to include transferred property in the transferor's gross estate. The court interpreted the absence of such conditions as exceptions to a general rule that [sec] 2036(a) would operate to pull back into the transferor's gross estate any transferred property.

99 See id. at 705.

100 Id.

101 See id.

102 See id.

103 Id.

104 Id.

105 See id. Kimbell was the first family limited partnership case to use [sec] 2036(a)(2) as the ground for inclusion. The Tax Court apparently considered [sec] 2036(a)(2) as a basis for inclusion in Estate of Thompson, but declined to address it because the parties had limited their arguments to [sec] 2036(a)(1)-which the court found applicable. 84 T.C.M. (CCH) at 387, n. 11. The court stated "we leave to another day the application of [sec] 2036(a)(2) to family limited partnerships such as those existing in this case." Id. In an earlier article, I argued that the Service should pursue [sec] 2036(a)(2) as a basis for including assets transferred to a family limited partnership in the transferor's gross estate. See Brant J. Hellwig, Estate of Strangi, Section 2036, and the Continuing Relevance of Byrum, 96 TAX NOTES 1259 (2002).

106 408 U.S. 125 (1972).

107 Kimbell, 244 F. Supp. 2d at 705.

108 Id. at 706.

109 Id.

110 One questionable aspect of the court's opinion in Kimbell is the discussion contained in footnote 1. The court noted that it declined to address the issue of whether the transferred partnership interests should be valued as a limited partnership interest or an assignee interest. See Kimbell, 244 F. Supp. 2d at 703 n.1. The court's reason for doing so was that the parties were nearing settlement of other aspects of the case, including this issue. Yet the court's conclusion under [sec] 2036 rendered the limited partnership vs. assignee interest issue moot. If the property transferred to the partnership was included at its fair market value under [sec] 2036, there would be no need to value the transferred partnership interests whatsoever. See Estate of Reichardt, 114 T.C. at 149 n.5 (noting that inclusion under [sec] 2036 renders moot the issue of whether the transferred property was a limited partnership interest or an assignee interest).

111 I.R.C. [sec] 2036(a).

112 See Joseph M. Dodge, Transfers with Retained Interests and Powers, 50-5th Tax Management Portfolio (BNA) at A-24 (noting an exception to the general rule that discretionary trusts for the benefit of the settlor are not included under [sec] 2036(a)(1) when the settlor is the trustee possessing such discretion); see also Estate of Pardee, 49 T.C. at 147-48 (holding that the decedent's ability as trustee to use trust income to discharge his legal obligation of supporting his children constituted the retention of the right to the income of property the decedent transferred to the trust for purposes of [sec] 2036(a)(1)).

113 Id. at 148 (citing Estate of McNichol, 265 F.2d at 671). The Third Circuit in Estate of McNichol noted that Congress inserted the phrase "right to" before "income" in order to make clear that the statute should apply in situations where the decedent was entitled to income even though he did not actually receive it. Estate of McNichol, 265 F.2d at 671.

114 Byrum, 408 U.S. at 136.

115 See Struthers v. Kelm, 218 F.2d 810, 814 (8th Cir. 1955); Estate of Alexander v. Commissioner, 81 T.C. 757, 763-65 (1983); Estate of O'Connor v. Commissioner, 54 T.C. 969, 973 (1970); see also United States v. O'Malley, 383 U.S. 627, 631 (1966) (describing as well settled the principle that the power to accumulate trust income constitutes the power to designate under [sec] 2036(a)(2)).

116 See I.R.C. [sec] 2036(a)(2); Treas. Reg. [sec] 20.2036-1(b)(3).

117 See Treas. Reg. [sec] 20.2036-1(b)(3)(i).

118 See Treas. Reg. [sec] 20.2036-1(b)(3)(iii).

119 Treas. Reg. [sec] 20.2036-1(b)(3).

120 Kimbell, 244 F. Supp. 2d at 705.

121 408 U.S. 125 (1972).

122 See Kimbell, 244 F. Supp. 2d at 705.

123 See id.

124 See Byrum, 408 U.S. at 126.

125 See id. at 126-27.

126 See id. at 127.

127 See id. at 128-29.

128 See id. at 130, 142.

129 See id. at 131-32.

130 See id. at 132.

131 See cases cited in supra note 115.

132 Byrum, 408 U.S. at 136.

133 Id. at 136-37. Had the Supreme Court resolved the opinion on this basis alone, the decision would have been seriously flawed. The decedent in Byrum was not only a majority shareholder in the corporations, he also served as a director of those corporations. See id. at 142. Thus, the decedent in fact possessed an ascertainable and legally enforceable power to vote on the corporations' dividend policy. Nowhere did the Supreme Court address why the decedent's right to vote as a director on the corporations' dividend policy did not constitute a joint power within the meaning of [sec] 2036(a)(2). See Dodge, supra note 112, at A-46 (criticizing the Byrum opinion on this and other grounds).

134 See Byrum, 408 U.S. at 137-38.

135 Id. at 139.

136 Id. at 139-40.

137 See id. at 141. The fiduciary constraints placed upon directors of a closely held corporation may exist more in theory than in practice. As the dissent noted, the threat of a derivative suit from minority shareholders "hardly guts the great power of a controlling shareholder to accelerate or retard, enlarge or diminish, most dividends." Id. at 158 (White, J., dissenting). The business judgment rule creates a presumption that corporate directors in making a business decision act on an informed basis, in good faith, and in the honest belief that the action taken is in the best interests of the company. See Orman v. Cullman, 794 A.2d 5, 19-20 (Del. Ch. 2002). Accordingly, courts will not second guess the decision of the board unless the plaintiff carries its burden of rebutting this presumption.

138 See id. at 142.

139 See id. at 143.

140 See, e.g., Eastland, supra note 16, at 1015-20; Jerry A. Kasner, Applying Byrum to Family Business Entities, 96 TAX NOTES 1741, 1742 (2002) (stating that Byrum settled the principle that control over a family business entity is not sufficient to trigger the application of [sec] 2036).

141 See Wendy C. Gerzog, A Different Take on the FLP Valuation Game, 97 TAX NOTES 683, 683 (2002) (arguing that Byrum provides a narrow exception to the general rule under [sec] 2036(a) that fiduciary constraints are insufficient to insulate a retained power from the application of the statute).

142 In his dissent to the application of Byrum in Estate of Gilman v. Commissioner, 65 T.C. 296 (1975), Judge Tannenwald voiced a similar concern: "What bothers me most about the majority approach is that [it] appears to escalate the rational of United States v. Byrum, 408 U.S. 125 (1972), which was developed in light of the particular facts of that case, into a mandated rigid doctrine of wide application." Id. at 323 (Tannenwald, J., dissenting).

143 In an earlier article, I argued that the facts of Byrum were distinguishable from the situation in which a family limited partnership is employed solely as an estate-planning vehicle. See Hellwig, supra note 105.

144 The Court specifically noted that the power of the decedent as controlling shareholder to elect the corporate directors conferred "no legal right to command them to pay or not to pay dividends." Byrum, 408 U.S. at 137. Given that Reg. [sec] 20.2036-1(b)(3) defines the "right to designate" under [sec] 2036(a)(2) as encompassing joint powers, it is curious that the Court in Byrum did not address the decedent's right to vote on the corporate dividend policy in his capacity as a director. Yet even had the Court focused on the decedent's role as a director, the balance of the Court's opinion indicates that the result would have been the same. Because of the obligation to consider the business needs of the corporation first and foremost in determining whether to declare dividends, the Court viewed the power of the board to set the dividend policy as in the nature of an administrative power outside the scope of [sec] 2036. See Byrum, 408 U.S. at 138-43.

145 Although the district court in Kimbell did not mention Reg. [sec] 20.2036-1(b)(3)(iii) by name, it applied the rule contained in that regulation that a condition precedent to the exercise of a power is ignored for purposes of applying [sec] 2036(a)(2). Thus, because the decedent possessed the unilateral ability to remove the general partner and name herself in its place, the Kimbell court treated the decedent as possessing the authority actually possessed by the LLC as general partner. One could argue that the application of Reg. [sec] 20.2036-1(b)(3)(iii) outside of the trust context was implicitly rejected by the Court in Byrum, because the Court was not swayed by the decedent's ability to elect the corporate directors. See Byrum, 408 U.S. at 137. Yet the driving force behind the Court's holding in Byrum was its belief that the powers held by directors of a corporation conducting a business activity are predominantly of an administrative nature. In setting the dividend policy, the board had to consider first and foremost the business needs of the entity, to which the needs and desires of any particular shareholder were subordinated. See id. at 137-38. Thus, the decision in Byrum likely would have been the same even if the decedent were the only director of the corporations at issue. As discussed in the text below, the business considerations that led Supreme Court to give such weight to the fiduciary duties of the corporate directors in Byrum are lacking in the majority of family limited partnerships that are created and operated principally for wealth-transfer purposes.

146 Id. at 139-40.

147 Id. at 140.

148 Id.

149 Id. at 139.

150 Perhaps the only restriction on the general partner's ability to allocate investments into income-producing assets would be the desire to avoid the recognition of gain on any assets that would have to be sold as part of the reallocation. This assumes that the low-yield investments held by the partnership contain substantial appreciation, an assumption that may not hold given the recent experience of the stock market.

151 One commentator has taken the opposite view by suggesting that general partners of closely held securities partnerships are every bit as constrained by business considerations as were the corporations at issue in Byrum. See Korpics, supra note 14, at 170. Specifically, Korpics contends that the ability of a general partner of a securities family limited partnership to distribute earnings is constrained by "the need to safeguard the long-term viability of the partnership, to account for outstanding debt, fees, and expenses, to act consistently with FLP policies, purposes, and long-range plans, and to consider the limited access afforded by certain capital markets (e.g., the need to accumulate funds to qualify for minimum investor thresholds)." Id. (citations omitted). The same can be said of a settlor-trustee who contributes securities to a discretionary trust for the benefit of herself and other family members. Thus, if this level of constraint were sufficient to exempt a retained power from the application of [sec] 2036, then the statute would be gutted of any practical effect.

152 In contrast, owners of a closely held entity that is engaged in a business operation typically undertake some sort of succession planning to prevent the death of the senior generation from signaling the discontinuation of the business. In this regard, life insurance owned by an irrevocable trust is often used to provide the liquidity necessary to prevent the decedent's beneficiaries from having to resort to the assets of the business to satisfy the estate tax liability.

153 In his article, Korpics contends that the fiduciary obligations placed upon a general partner of a limited partnership differ to such a degree from the fiduciary obligations of a trustee of a discretionary trust that identical powers over distributions possessed by a general partner and a trustee should be treated differently for purposes of [sec] 2036. See Korpics, supra note 14, at 170-72. Specifically, Korpics contends that whereas the general partner has a duty to act in the best interests of the partnership as well as the partners, the trustee of a discretionary trust "is simply bound to make income and/or principal distributions (or both, as the case may be), as needed, in the best interests of the beneficiary." Korpics, supra note 14, at 171. This argument is flawed in a number of respects. First, it ignores the obligation of the trustee to prudently manage the investment of the trust property. See RESTATEMENT (THIRD) OF TRUSTS [sec] 227 ("The trustee is under a duty to the beneficiaries to invest and manage the funds of the trust as a prudent investor would, in light of the purposes, terms, and distribution requirements, and other circumstances of the trust."). Second, the obligation that a fiduciary owes to an entity is derivative of the fiduciary's obligation to treat all owners of the entity impartially. For example, in describing the fiduciary duty of the corporate directors to promote the interests of the corporation, the Court in Byrum cited corporate law jurisprudence for the proposition that the directors could not play favorites among the shareholders or classes of shareholders. See Byrum, 408 U.S. at 138 n. 12 (citations omitted). Similarly, a trustee owes a duty to deal impartially with all trust beneficiaries. See RESTATEMENT (THIRD) OF TRUSTS [sec] 183. Last, the duty of loyalty and duty of care that a general partner owes to a limited partnership constitute a weak basis upon which to elevate the nature of the fiduciary duty owed by a general partner above the fiduciary duty of a trustee. The duty of loyalty merely prevents the general partner from appropriating a partnership opportunity and/or competing with the partnership, whereas the duty of care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law. See UNIF. LTD. P'SHIP ACT (2001) [sec] 408(a)-(c), 6A U.L.A. 45-46 (Supp. 2002); UNIF. P'SHIP ACT (1997) [sec] 404(a)-(c), 6 U.L.A. 143 (2001). In fact, a leading treatise on partnership law suggests that the duties owed by a general partner to a limited partnership should be less stringent than the duties owed by a trustee. See BROMBERG AND RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP [sec] 16.07(a)(2) (stating that even though some courts have likened general partners in limited partnerships to trustees, "[a]rguably their duties should be less intensive than those of trustees, at least in general partnerships.").

154 See Byrum, 408 U.S. at 142.

155 Jerry A. Kasner has argued that the Byrum defense to [sec] 2036(a) should be available to partnerships in which only family members are involved. See Kasner, supra note 14, at 395. He is right - otherwise every closely held business would have potential exposure under [sec] 2036. See Raby & Raby, supra note 14, at 1244 (stating that "If the involvement of unrelated third parties a la Byrum is essential for there to be a valid fiduciary obligation, then we suspect that a majority of the FLPs that have been created in the past decade or so are vulnerable to a section 2036 challenge when [the principal contributor] dies."). Yet unlike Kasner, I do not believe that the Byrum defense is available in all cases in which the parties observe the partnership formalities, act in accordance with their fiduciary duties, and treat the partnership as a viable entity. See Kasner, supra note 14, at 395. There must be something about the fiduciary duty that necessitates treating the general partner's retained powers over distributions of partnership income as a managerial power rather than a dispositive one. In my view, the fiduciary duty of the general partner provides a sufficient restriction on the general partner's ability to distribute partnership income only when the partnership is engaged in some sort of business enterprise. Only in these cases will the general partner's decisions regarding whether to permit the current partners to enjoy the partnership income (a dispositive power) be outweighed by considerations relating to the partnership's need to retain capital (a managerial decision).

156 The dubious nature of the restriction that fiduciary obligations impose on a general partner in a family limited partnership is confirmed by the number of such partnerships in which the principal contributor commingles partnership assets with personal funds, or utilizes personal-use property without paying fair rental value to the partnership.

157 Kimbell, 244 F. Supp. 2d. at 706.

158 The fact that so many people may have structured their estate-planning affairs on the assumption that Byrum will prevent the application of [sec] 2036(a)(2) is one reason for courts not to adopt a limited reading of the case. The following passage from Byrum is relevant in this regard:

Courts properly have been reluctant to depart from an interpretation of tax law which has been generally accepted when the departure could have potentially far-reaching consequences. When a principle of taxation requires reexamination, Congress is better equipped than a court to define precisely the type of conduct which results in tax consequences.

Byrum, 408 U.S. at 135. That being said, if courts were to adopt a less expansive reading of the Byrum decision, taxpayers potentially exposed to [sec] 2036(a) could attempt to avoid the section by liquidating their partnerships.

159 Id. at 139.

160 See Martin J. McMahon Jr., Beyond a GAAR: Retrofitting the Code to Rein in 21st Century Tax Shelters, 98 TAX NOTES 1721, 1736 (2003) (arguing that uncertainty in the application of tax law is to some extent desirable; achieving certainty leads to the never-ending proliferation of specific rules); David A. Weisbach, The Failure of Disclosure as an Approach to Shelters, 54 SMU L. REV. 73, 81 (2001) (questioning the standard assumption that uncertainty in tax law is something to be avoided).

161 Pub. L. No. 94-455, [sec] 2009(a), 90 Stat. 1893, as amended by Revenue Act of 1978, Pub. L No. 95-600, [sec] 702(i), 92 Stat. 2931.

162 Section 2036(b) provides that [sec] 2036(a)(1) applies to a transfer of voting stock in a corporation if (a) the transferor retained the right to vote the stock (either directly or indirectly), and (b) at any time after the transfer and within the 3-year period preceding the transferor's death the transferor possessed (either directly or through the stock attribution rules of [sec] 318) the right to vote at least 20% of the total combined voting power of all classes of stock.

163 see Dodge, supra note 112, at A-47:

[Section 2036(b)] leaves the Byrum holding as to [sec] 2036(a)(2) undisturbed, so that it will continue to influence retained-powers doctrine. Moreover, the amendment does not really alter the Byrum holding as to [sec] 2036(a)(1) (i.e., namely, that a retained interest must involve substantial measurable economic enjoyment) except of course insofar as [sec] 2036(b) applies by its terms.

164 See Priv. Ltr. Rul. 95-46-006 (Nov. 17, 1995); Priv. Ltr. Rul. 94-15-007 (Apr. 15, 1994); Priv. Ltr. Rul. 93-10-039 (Mar. 12, 1993); T.A.M. 91-31-006 (Aug. 2, 1991). Evidently, the government has reconsidered whether Byrum has such wide-ranging impact. Pursuant to [sec] 6110(k)(3), these rulings cannot be cited by third parties as precedent and therefore are not binding upon the government.

165 See Treas. Reg. [sec] 20.2036-1(b)(3).

166 See id.

167 In this regard, it is worth noting that the mere fact that a member of the decedent's family served as a general partner alone would not be a sufficient basis to attribute the powers of the related party to the decedent. See Estate of Mitchell v. Commissioner, 55 T.C. 576, 581 (1970) (stating that it could not be assumed that the grantor-decedent's son would disregard his obligation to exercise his independent discretion as trustee by acting at the direction of his father); see also Priv. Ltr. Rul. 98-34-005 (May 14, 1998); Priv. Ltr. Rul. 98-34-004 (May 14, 1998); T.A.M. 85-04-011 (Oct. 31, 1984) (each citing Mitchell for the proposition that a relationship between the grantor and trustee does not displace the trustee's fiduciary duty to act independently of the grantor).

168 The three-year rule under [sec] 2035(a) would also apply if the discretionary power of partnership income were terminated because the decedent, in conjunction with other partners, voted to liquidate the partnership. See Tech. Adv. Mem. 1999-35-003 (Sept. 9, 1999) (commutation of decedent's interest in grantor retained interest trust constituted a transfer for purposes of [sec] 2035 because the commutation was effected by the trustee's actions with the consent of the decedent).

169 See Estate of Strangi, 115 T.C. at 479-80.

170 See id. at 480-81.

171 See id. at 481-82.

172 See id. at 481.

173 See id.

174 See id. at 481-82. It is not clear from the opinion what percentage ownership the 100 donated shares represented.

175 See id. at 482.

176 See id. at 481.

177 See id. at 480, 482.

178 See id. at 482.

179 Id. at 486.

180 Id. at 490. Judge Ruwe, a proponent of the gift-upon-formation argument, questions the majority opinion's statements regarding the decedent's control over SFLP:

While the basis for finding that decedent did not give up control of the assets is not fully explained, it appears not to be based on the literal terms of the partnership agreement which gave control to Stranco, the corporate general partner. Decedent owned only 47 percent of the Stranco stock.

Id. at 499 n.2 (Ruwe, J., dissenting).

181 Estate of Reichardt, 114 T.C. at 152.

182 See Estate of Strangi, 115 T.C. at 482.

183 See Treas. Reg. [sec] 20.2036-1(b)(3)(i). For a discussion of the scope of [sec] 2036(a) powers over distributions of income from transferred property, see supra Part III.B.

It is not uncommon for a corporation or an LLC to be formed for the exclusive purpose of serving as the general partner of a family limited partnership. In such cases, the powers afforded to the general partner in the partnership arrangement, absent delegation, are exercised by those who act on behalf of the corporate or LLC general partner. The determination of whether a [sec] 2036 power exists must be made with regard to the individuals who act on behalf of the corporation or LLC serving as general partner, otherwise the statute could be rather easily avoided through the imposition of an intermediary entity.

184 Estate of Strangi, 115 T.C. at 501 n.1 (Beghe, J., dissenting) (internal citation omitted).

185 The Supreme Court noted "[t]here is no reason to suppose that the three corporations controlled by Byrum were other than typical small businesses." Byrum, 408 U.S. at 139. The names of the companies at least suggest that they conducted some form of legitimate business instead of serving as mere investment vehicles: Byrum Lithographing Co., Inc., Graphic Realty, Inc., and Bychrome Co. See id. at 130.

186 Others would disagree on this point, citing Kerr v. Commissioner, 292 F.3d 490 (5th Cir. 2002). In Kerr, the Service argued that [sec] 2704(b) applied to the restrictions on liquidation of the closely held partnership, meaning that such restrictions should be ignored in valuing the transferred partnership interests. For a restriction on liquidation to be disregarded pursuant to [sec] 2704(b), however, the transferor and members of the transferor's family must be able to remove the restriction immediately after the transfer. See I.R.C. [sec] 2704(b)(1), (2)(B); Treas. Reg. [sec] 25.2704-2(b). The issue in Kerr was whether transferors and their family members had the ability to liquidate the partnerships, which required unanimous approval of all partners. See Kerr, 292 F.3d 493-94. Yet the partnerships were not wholly owned by the transferors and their family. The University of Texas owned an interest as limited partner in each. See id. at 494. The Commissioner argued that the school's interest should be disregarded in applying [sec] 2704, because the school would not likely veto any action to be taken by the family members, particularly one that resulted in the school's cashing out its partnership interest. See id. The Fifth Circuit rejected this argument, noting that it conflicted with the provisions of [sec] 2704. See id.

Whereas the consent of the charitable partner in Kerr was necessary to satisfy the statutory requirements of [sec] 2704(b), the application of [sec] 2036(a)(2) in Estate of Strangi does not depend upon the compliant conduct of the community college. Rather, the terms of [sec] 2036(a)(2) are satisfied because the decedent possessed the power to determine the timing and amounts of partnership distributions. It is up to the estate to establish a basis for treating this power as a mere administrative one (exempt from [sec] 2036(a)(2)), as opposed to a discretionary right to determine distributions to the partners. One basis for doing so would be the presence of minority equity owners who would balk at the decedent's setting the distribution policy to comport with her personal will. In this latter context, the likely compliant conduct of the community college in Estate of Strangi cannot be dismissed.

187 This would depend on how much the estate had to lose if [sec] 2036(a) applied; that is, how much of the beneficial interest in the partnership had been assigned to other family members prior to the decedent's death.

Brant J. Hellwig*

*Assistant Professor, University of South Carolina School of Law. The author is grateful to Lad Boyle, Noel Cunningham, Joseph Dodge, Wendy Gerzog, Deborah Schenk, and Ethan Yale for their comments on earlier drafts of this Article.

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