SEPT. 25, 2000

Estate Talk
Decedent's Same-Sex Life Partner 
Did Not Have 50% Interest in Shared Home

The Seventh Circuit of the U.S. Court of Appeals recently affirmed a Tax Court decision that 100% of the value of a house shared by a decedent and her life partner must be included in the decedent’s estate since the life partner failed to prove that she held a beneficial interest in one-half of the property.
Lucille Horstmeier (the decedent) and Mary Scott lived together as a couple from 1974 to 1993. Throughout their relationship, Scott handled household maintenance while Horstmeier worked as a successful business owner, providing significant support to Scott. The two lived in three residences during their relationship. The house with which this case deals is in Illinois and was purchased by Horstmeier in 1975. Scott’s name does not appear on any documents associated with this home, and Horstmeier deducted all of the mortgage interest and real estate taxes from the home on her own federal taxes from 1975 to 1992.

The couple purchased another home in Wisconsin in 1979, for which both women contributed to the down payment. Title was in both names until Scott finished making all 36 monthly mortgage payments. Scott eventually took title to that property in her name alone.

When Horstmeier died in 1993, Scott was appointed as executor of her estate. The Illinois property was passed to Scott as residuary beneficiary of a trust to which Horstmeier bequeathed her assets that were not required for estate administration. Scott filed a claim in probate court seeking a 50% tenancy-in-common interest in the Illinois home, and the court approved the claim without reaching the merits or the underlying facts. When she filed the federal estate tax return for the estate, Scott included only 50% of the value of the Illinois home in the gross estate and deducted only 50% of the remaining note balance. She did so based on the theory that she owned 50% of the home and the estate owned the other 50%.

But the IRS concluded that Horstmeier alone owned the house, and that 100% of the value of the home should therefore be included in the return, while 100% of the mortgage note balance should be deducted. This resulted in a tax deficiency of $157,404.

Scott challenged the IRS ruling in tax court, contending that she and Horstmeier had agreed that Horstmeier would serve as nominee for the couple as joint owners of the home because their same-sex relationship would have been condemned and could have caused controversy. Scott claimed that

1. She and Horstmeier had agreed they would share expenses for the home and
2. Horstmeier required Scott to pay $3,000 per year until she paid a total of $25,000 (One half of the original down payment).