Gerald W. Ray, Trustee and Personal Representative of the Estate of David L. Ray v. United States

The estate of David Ray brought this action in the district court to recover the estate tax and interest paid on a one-half interest in a trust established pursuant to a divorce settlement. The district court denied the refund. It held that the one-half interest was properly included in the estate pursuant to 26 U.S.C. § 2036 (a) because the decedent retained a life estate in the property transferred to the trust, and the estate failed to prove that the transfer was a “bona fide sale for an adequate and full consideration in money or money’s worth.” 26 U.S.C. § 2036 (a). Appellants argue that this transaction was a sale of property in consideration for an annuity rather than a transfer to a trust with a retained income interest. Because the parties to the transaction never described it as the purchase of an annuity and because it has none of the distinguishing characteristics of an annuity purchase, we affirm.

FACTS

The decedent, David Ray, and his former wife, Frances Ray, entered into a Property Settlement Agreement and Trust Agreement in 1959 as part of their divorce proceedings. The Trust Agreement provided that David Ray was to receive $400 a month for life, and Frances Ray…