SEPT. 18, 2000

Estate Talk
Ambiguous Language Nearly Costs Estate a Charitable Deduction

When Kenneth Starkey died, his will created a trust and directed that half of the trust’s income be paid to Lawndale Community Church. However, the will specifically stated that "the trustees are to manage the property of the Trust for the benefit of this beneficiary, missionaries of the Gospel of Christ, and Milligan College." The attorney who drafted the will was Starkey’s son, who had little or no experience drafting such instruments.

Starkey’s estate realized that the language of the will created confusion. The phrase "missionaries of the Gospel of Christ" could refer to Lawndale Community Church, or it could create a separate class of beneficiary. The estate petitioned the state probate court to reform the trust, construing the phrase as "standing in apposition to, and describing, the Lawndale Community Church," rather than creating a new class of beneficiary. The probate court allowed the reformation, and the Indiana Court of Appeals affirmed.

But the IRS ignored the probate court’s ruling and maintained that Starkey’s will created three separate classes of beneficiaries: two charitable (Lawndale Community Church and Milligan College) and one noncharitable (a group of unknown Christian missionaries). Since the amount of the charitable bequest could not be determined, the IRS disallowed the deduction and issued an estate tax deficiency, which the estate paid.

A U.S. district court also disagreed with the state court’s interpretation of the ambiguous phrase, and granted summary judgement to the IRS. The district court noted that it was not bound by the state court’s decisions and that the tax dispute at issue was "strictly a matter of federal law, and the IRS was not party to the state court proceedings."

But the Seventh Circuit Court of Appeals reversed, reasoning that the documents, "while inartfully drafted, adequately demonstrate that Mr. Starkey intended to create a charitable trust that qualifies for the charitable deduction." This decision relied upon the opinion of the estate’s grammar expert and upon the testimony of Starkey’s son, who stated that the Lawndale Community Church’s missionary programs are well known and were the only missionary programs his father was known to support.

To avoid such situations, always consult an experienced estate planning or elder law attorney before drafting a will or any other such document.