Estate of Rapp v. Commissioner

Facts

Rapp’s will included a trust that gave the trustees power to use the funds for the proper health, education, and support of his wife Laura B. Rapp, if in the absolute discretion of the trustee such funds were needed. Mrs. Rapp asked the probate court to modify this portion of her husband’s will so that the trust created by the will would qualify for the marital deduction as a QTIP trust. Rapp alleged that it was her husband’s intent to create the trust to qualify for the deduction and that he believed that the trustees would pay all of the income of the trust at least annually to or for the benefit of the petitioner during her lifetime. She claimed that the trust was a part of the marital deduction gift as defined by section 21520(b) of the California Probate Code. At oral argument, no witnesses were called and no documents were admitted into evidence. The IRS did not receive notice of the petition and did not appear. The petition relied upon the probate’s power to modif y or terminate a trust upon consent of all parties, or its power to modify or terminate the trust due to changed circumstances under the California Probate Code. The executor attempted to claim the trust as a QTIP exemption. The IRS rejected the exemption and the executor appealed. The tax court held that the probate court erred in reforming the will because it was not ambiguous and there was little or no evidence that Mr. Rapp intended to create a QTIP trust.