Posts Tagged ‘Estate of Starkey v. United States’

“Inartfully Drafted” Will Leads To $500,000 Estate Tax Dispute

SEPTEMBER 18, 2000 VOLUME 8, NUMBER 12

Lawyers’ clients often complain about the language of the law—it seems unnecessarily strained and convoluted. Even as lawyers try to capture their meaning in more conversational tones, an occasional case will demonstrate the importance of precise language. Kenneth Starkey, whose will was written by his lawyer son, is an illustration of that point.

Weeks before his death Mr. Starkey asked his son for help in drafting a new will. He wanted some of his estate to go to educational funds for his grandchildren, but he also wanted to leave a considerable portion of the estate to charity. This would not only permit his accumulated wealth to finance good works, but also would reduce the estate tax liability due upon his death.

Mr. Starkey particularly favored Lawndale Community Church in Chicago, Illinois, where Pastor Wayne Gordon was (and apparently still is) Director, and Milligan College in Tennessee, a small Christian liberal arts school. His will included a trust which would ultimately be valued at about $1.3 million, and which paid half of its income to Lawndale Community Church, so long as Pastor Gordon remained as Director. The remaining income of the trust, and the principal itself after Pastor Gordon’s retirement, was to be maintained “for the benefit of [Lawndale], missionaries preaching the Gospel of Christ, and Milligan College.”

While that language may look like a charitable bequest, the Internal Revenue Service disagreed. It read the trust’s terms as creating three intended beneficiaries: Lawndale Community Church, Milligan College and a group of unspecified missionaries. The estate argued in vain that “missionaries preaching the Gospel of Christ” was just a description of Lawndale Community Church’s well-known work in the missionary field.

The significance of this linguistic dispute was not minor. If the IRS interpretation was correct, Mr. Starkey’s estate owed an additional $520,178 in estate taxes. To help interpret the questioned phrase, the estate brought an action in Indiana’s probate court, had the court appoint an attorney to represent the unspecified “missionaries preaching the Gospel of Christ,” and secured an Indiana Court of Appeals ruling that the questioned phrase merely described Lawndale Community Church.

The IRS still insisted that the tax was owed, and so the estate paid the tax and appealed the IRS’ interpretation to the federal courts. The Indiana Federal District Court sided with the IRS and denied the estate’s request for a refund. The estate pressed on, and the Seventh Circuit Court of Appeals reversed that decision, ruling that Mr. Starkey’s charitable intent was clear and the tax was not owed. Estate of Starkey v. United States, August 17, 2000.

Ultimately Mr. Starkey’s charitable intent was vindicated in the courts, but not until four different courts (two Indiana State courts and two Federal courts) had considered the meaning of the disputed phrase. The cost of securing the favorable tax treatment is unreported, but was probably itself significant.

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