                          T.C. Memo. 2002-186


                        UNITED STATES TAX COURT



 ESTATE OF FRANCES C. GLOVER, a.k.a. FRANCES C. CLOUD, DECEASED,
          KEVIN HOLLERAN AND WILMINGTON TRUST COMPANY,
               ADMINISTRATORS PRO TEM, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9054-95.                     Filed August 2, 2002.


     Mark L. Tunnell, for petitioner.

     Gerald A. Thorpe, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge:     Pursuant to a statutory notice of deficiency

dated March 2, 1995, respondent determined a $698,191 deficiency in

the estate tax of the Estate of Frances C. Glover (hereinafter,

Frances C. Glover is referred to as decedent and her estate as

decedent’s   estate).     On   April   21,    1999,   the   Court   granted
                                    - 2 -

respondent’s motion for leave to file amendment to answer and to

claim increased deficiency asserting an increased deficiency in

estate tax of $2,235,455.49.

     In the amendment to answer, respondent raised as an issue

whether a potential malpractice claim decedent possessed against

the law firm of Eckell, Sparks, Monte, Auerback & Moses (Eckell,

Sparks)    constituted    an     interest      in   property       includable   in

decedent’s gross estate, and if so, the value of that claim.                    As

detailed   infra,   on   March    13,   1995    (more     than   4   years    after

decedent’s death), the administrators pro tem. and the residuary

beneficiaries of decedent’s estate filed an action against Eckell,

Sparks.    The plaintiffs’ claims in that action included, among

others, a claim related to malpractice committed in handling

decedent’s affairs during her life and a claim for a return of

attorney’s   fees   of   $247,500    paid   by      the   estate     for   services

rendered during the administration of the estate.                  In April 2000,

the Court of Common Pleas of Chester County, Pennsylvania, Orphans’

Court Division (the Orphans’ Court) ordered Eckell, Sparks to

return the $247,500 of attorney’s fees paid by the estate.                      In

early May 2000, the administrators pro tem., the Glovers, and

Eckell, Sparks entered into a settlement agreement, pursuant to

which Eckell, Sparks agreed to pay the administrators pro tem. and

the residuary beneficiaries $750,000 for the release of all their

claims against the law firm.
                                         - 3 -

        The parties filed a stipulation of settled issues with this

Court        in    which   they   were   able    to   resolve   most   of   their

differences.1         In addition, in the stipulation of settled issues,


        1
          Pursuant to the stipulation of settled issues, the
parties agreed to the following settlement terms:

        a.        The value of Folly Hill Farm reported on the estate tax
                  return should be reduced by $77,447 to reflect the cost
                  of an environmental cleanup;

        b.        The value of the Woolworth stock reported on the estate
                  tax return should be increased by $86,941;

        c.        The taxable estate reported on the estate tax return
                  should be increased by $5,000 to reflect a general
                  power of appointment decedent held in the Frances G.C.
                  Glover Trust on the date of death;

        d.        The taxable estate reported on the estate tax return
                  should be increased by $48,500 to reflect the value of
                  a claim decedent had against Madelyn M. Hurley on the
                  date of death;

        e.        The taxable estate reported on the estate tax return
                  should be increased by $20,021 to reflect the value of
                  a claim decedent had against Charles W. Hurley on the
                  date of death;

        f.        The taxable estate reported on the estate tax return
                  should be increased by $133,712 to reflect a Federal
                  income tax refund for 1990 to which decedent was
                  entitled on the date of death;

        g.        Decedent’s estate will be allowed a deduction for
                  administrator’s commissions and other miscellaneous
                  administrative expenses paid by decedent’s estate to
                  the extent approved by a final order of the Court of
                  Common Pleas of Chester County, Pennsylvania, Orphans’
                  Court Division (the Orphans’ Court).

        h.        Decedent’s estate will be allowed a deduction for
                  attorney’s fees paid by decedent’s estate (excluding
                  attorney’s fees paid to attorneys representing the
                                                           (continued...)
                                     - 4 -

decedent’s   estate    and   respondent      agreed   to     use    the    $750,000

settlement amount as “the starting point” for determining the value

of decedent’s interest in the malpractice claim against Eckell,

Sparks.    The parties further agreed (1) to reduce the $750,000

settlement proceeds by $203,659, representing the legal costs

incurred in prosecuting the malpractice claim, (2) that decedent’s

estate had the “right to argue” that the $750,000 figure should be

further reduced (a) by $247,0002 representing the claim the estate

asserted   for   the   return   of    attorney’s      fees    and    (b)    for   an

additional portion of the amount recovered from Eckell, Sparks

“because it is property belonging to the residuary beneficiaries

(the Glovers) and is not property of the estate”, and (3) that the

net value of decedent’s interest in the malpractice claim at the

date of settlement (after all allowable reductions) should be

multiplied by 0.438233 to arrive at its present value as of the

date of decedent’s death.




     1
      (...continued)
          residuary beneficiaries and payment to one of the
          residuary beneficiaries, the deductibility of such fees
          and payments are at issue in this case) to the extent
          approved by a final order of the Orphans’ Court.

     i.    Decedent’s estate should be allowed a deduction, not to
           exceed $1 million, for a charitable bequest to the
           University of Pennsylvania to the extent paid.
     2
          The actual amount of attorney’s fees ordered returned
was $247,500.
                                    - 5 -

      The issues remaining3 for us to decide are as follows:

      1.   Whether any portion of the $750,000 settlement Eckell,

Sparks paid to the administrators pro tem. and the residuary

beneficiaries    of    decedent’s    estate      (the   Glovers)      should   be

allocated to (a) the value of the estate’s claim for the $247,500

of legal fees that the Orphans’ Court ordered Eckell, Sparks to

return to decedent’s estate and/or (b) to the value of the claims

the Glovers made against Eckell, Sparks, with the consequences that

the amount of any such allocation is not included in the value of

decedent’s claim against Eckell, Sparks on the date of her death.

      2.   If   we    determine    that    no    portion   of   the    $750,000

settlement is allocable to the Glovers’ claims, then whether that

portion (60 percent) of the $750,000 Eckell, Sparks settlement that

was   distributed     to   the   Glovers    is   a   deductible    expense     in

determining decedent’s taxable estate.




      3
           In its answering brief, decedent’s estate:

      a.   Conceded that attorney’s fees of $247,500 paid to
      the law firm of Eckell, Sparks, Monte, Auerback & Moses
      that the Orphans’ Court ordered be returned to
      decedent’s estate are not deductible as administrative
      expenses pursuant to sec. 2053(a)(2).

      b.   Failed to address and, therefore, is deemed to
      have conceded that commission of $250,000 paid to
      Madelyn M. Hurley, the original executrix of decedent’s
      estate, is not deductible as an administrative expense
      pursuant to sec. 2053(a)(2) nor deductible as a theft
      loss pursuant to sec. 2054.
                                   - 6 -

     3.     Whether payments made by decedent’s estate to attorneys

representing the Glovers, and payments, if any, to be made to Mr.

Glover (one of the residuary beneficiaries) for time and money

spent in discovering the misappropriation of decedent’s assets by

Ms. Hurley and Mr. Ross (persons to whom decedent entrusted all of

her financial affairs) are deductible either as administrative

expenses (pursuant to section 2053(a)(2)) or as claims against the

estate (pursuant to section 2053(a)(3)) in determining decedent’s

taxable estate.4

                            FINDINGS OF FACT

     Some    of   the   facts   have   been   stipulated   and   are   found

accordingly.      The stipulation of facts and the exhibits submitted

therewith are incorporated herein by this reference.

Background

     On the date of her death, June 3, 1991, decedent resided in

Pennsylvania.      Kevin Holleran and the Wilmington Trust Co. were

duly appointed coadministrators pro tem. of decedent’s estate.            At

the time the petition in this case was filed, Mr. Holleran resided

in Pennsylvania, and the principal place of business of Wilmington

Trust Co. was in Delaware.




     4
           All section references are to the Internal Revenue Code
as amended and in effect on the date of decedent’s death, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                      - 7 -

Decedent

     Decedent inherited substantial wealth from her parents and a

great uncle.    Her lifestyle was not lavish; she lived comfortably

on the income and dividends from her investments.

     At an unspecified date in the early 1960s, decedent met

Madelyn    Hurley   (also     known   as    Lynn    Hurley);   they    thereafter

developed a close friendship.         Initially, Ms. Hurley began helping

decedent by performing secretarial and administrative chores (such

as sorting mail, paying bills, and depositing checks); she was not

compensated for these services.             At an unspecified date in early

1980, decedent engaged Richard Ross to serve as her financial

adviser.    Thereafter, Mr. Ross and Ms. Hurley worked together, and

decedent began compensating Ms. Hurley for her services.

     On June 4, 1984, decedent suffered a stroke that left her

partially paralyzed.        After the stroke, decedent entrusted all of

her financial affairs to Mr. Ross and Ms. Hurley.                   At that time,

decedent’s    assets,   which    consisted         primarily   of   real   estate,

stocks, and bonds, were worth more than $13 million.

     Mr. Ross and Ms. Hurley opened three checking accounts into

which they deposited decedent’s funds and over which they had

signature authority.        Mr. Ross and Ms. Hurley also held powers of

attorney     that   allowed    them    to     conduct    transactions      through

decedent’s brokerage accounts.
                                      - 8 -

     At an unspecified date in 1987, Mr. Ross (until his death in

1989) and Ms. Hurley began to misappropriate decedent’s funds.            By

the date of decedent’s death in 1991, they had misappropriated

approximately $1.6 million.       Mr. Ross and Ms. Hurley used these

funds to pay their personal expenses and to invest in business

ventures.   They retained Eckell, Sparks to represent them in some

of these business ventures.

Decedent’s Will

     In June 1989, Mr. Ross and Ms. Hurley engaged Eckell, Sparks

to draft a new will (the 1989 will) for decedent.              Before this

time, Eckell, Sparks had not performed legal services for decedent.

Eckell,   Sparks   did   not   send    decedent   an   “engagement   letter”

acknowledging their representation of her or specifying the fee

arrangement.   Nor did any attorney from Eckell, Sparks meet or

communicate with decedent.      Rather, in preparing the 1989 will for

decedent, Joseph Monte of Eckell, Sparks used decedent’s prior will

(the old will), which was provided by Mr. Ross and Ms. Hurley, and

relied upon information provided by Mr. Ross and Ms. Hurley.

     Decedent had a longtime companion, Edward H. Cloud, whom she

married on June 13, 1990.         She also had one brother, Rolfe E.

Glover III, who had three children, Rolfe E. Glover IV, Gordon F.

Glover, and Katherine C. Glover.          (Reference to Mr. Glover is to

Rolfe E. Glover IV, and reference to the Glovers is to the three
                                     - 9 -

children.)    The Glovers were the residuary beneficiaries under the

old will as well as the 1989 will.

     The     1989    will   provided     for    certain    specific bequests,

including a bequest of $50,000 to Mr. Ross and a bequest of $1

million to the University of Pennsylvania.5

     Decedent       owned   a   mobile   home    (valued    at   approximately

$250,000) which was to be held in trust and rented for $1 per year

to Mr. Cloud for so long as he desired.              She also owned a farm

residence (known as Folly Hill) which was to be held in trust for

the benefit of Mr. Cloud, giving him the right to occupy the farm

rent free for life.         Upon Mr. Cloud’s death, the farm went to a

residuary trust for the benefit of the Glovers.

     The 1989 will created a residuary trust, from which the

trustee was to pay so much of the income and principal as necessary

to pay Mr. Cloud’s living expenses during his life. Upon Mr.

Cloud’s death, the assets of the residuary trust, including the

farm, were to be distributed to the Glovers.

     Mr. Ross was named as the executor/trustee of the 1989 will.

Ms. Hurley was named as the contingent executrix/trustee in the

event Mr. Ross failed to qualify or ceased to act.




     5
          The bequest was to establish and perpetuate the Frances
Cheney Glover Endowment Fund to be used for the support of
academic development of veterinary staff and teaching of
veterinary students.
                                 - 10 -

     Mr. Ross and Ms. Hurley delivered the 1989 will to decedent.

Ms. Hurley penned the following interlineations on the will:             Ms.

Hurley was to receive a $50,000 bequest, and Mr. Cloud’s nieces and

nephew (the Pierces), rather than the Glovers, were to receive the

farm upon Mr. Cloud’s death.     After initialing the aforementioned

interlineations,    decedent   signed   the   will   on   June   29,   1989.

Present at that time were Mr. Cloud, Mr. Ross, Ms. Hurley, and

Jayne Kirkpatrick (a friend of decedent). The signed will was then

taken by Mr. Ross and Ms. Hurley to Ms. Hurley’s home where Ms.

Hurley’s mother (Nell Meding) and Ms. Hurley’s secretary (Karen

Benner) signed the 1989 will as witnesses.           Upon obtaining these

signatures, Mr. Ross and Ms. Hurley delivered the executed 1989

will to Eckell, Sparks, where the signatures were improperly

notarized.   The 1989 will was then placed in a safe at the office

of Eckell, Sparks.   Subsequently, Eckell, Sparks sent the original

and a copy of the 1989 will to Ms. Hurley where they remained until

decedent’s death.

     On August 24, 1989, Mr. Ross died.              Ms. Hurley was the

executrix and sole beneficiary of Mr. Ross’s estate.

Antenuptial Agreement

     In early 1990, decedent and Mr. Cloud decided to marry.             On

May 17, 1990, Ms. Hurley retained Eckell, Sparks to draft an

antenuptial agreement for decedent and Mr. Cloud.         The antenuptial

agreement provided that decedent would leave Mr. Cloud a cash
                                  - 11 -

bequest of $2 million in her will.           Eckell, Sparks mailed the

antenuptial agreement to Ms. Hurley.            Eckell, Sparks did not

recommend to decedent that, before the execution of the antenuptial

agreement, she or independent counsel consult with her accountant,

George Skinner, to obtain a statement of her assets.           On May 22,

1990, decedent and Mr. Cloud executed the antenuptial agreement.

Ms. Hurley kept the executed antenuptial agreement until she sent

it to Eckell, Sparks in the spring of 1991.

Revised Will

     On April 2, 1991, Ms. Hurley met with a member of Eckell,

Sparks to discuss the revision of decedent’s will.            The revised

will was to include the $2 million bequest to Mr. Cloud, reduce the

bequest   to   the   University   of    Pennsylvania   to   $250,000,   and

eliminate the $50,000 bequest to Ms. Hurley.        The revised will was

sent to Ms. Hurley on April 2, 1991.         Ms. Hurley, however, never

gave the revised will to decedent to execute.

     Decedent died on June 3, 1991.

Decedent’s Estate

     All of the beneficiaries under the 1989 will, except Mr. Ross,

were alive when decedent died.         Since decedent’s death, Mr. Cloud

and Ms. Kirkpatrick have died.

     On June 7, 1991, Ms. Hurley submitted the 1989 will to the

Register of Wills of Chester County, Pennsylvania (register of

wills) for probate.     The register of wills admitted the 1989 will
                                       - 12 -

(with    the     interlineations)       to     probate     and     granted     Letters

Testamentary to Ms. Hurley.

       Ms.   Hurley     engaged   Eckell,       Sparks   to      represent      her    as

executrix for the estate.              Soon thereafter, Mr. Cloud filed a

petition     with     the   Orphans’     Court,       seeking      to    enforce      the

antenuptial      agreement.          Without    opposition,        the    antenuptial

agreement was upheld by the Orphans’ Court.

Decedent’s Income Tax Returns

       Shortly after decedent’s death, Eckell, Sparks learned that

decedent had not filed income tax returns for the 4 years preceding

her death. In August 1991, Eckell, Sparks obtained from decedent’s

accountant, Mr. Skinner, his files relating to decedent’s affairs.

Those files revealed that Mr. Skinner (1) had filed with the

Internal Revenue Service requests for extensions of time for filing

decedent’s tax returns, (2) had partially prepared tax returns for

the years in question, based upon information available to him from

the preparation and filing of previous tax returns for decedent

(and    before    Mr.   Ross   and    Ms.    Hurley    took     over     as   financial

advisers), (3) had over the 4-year period asked Mr. Ross and Ms.

Hurley for information needed to complete the tax returns, and (4)

was    unable    to   document    decedent’s      assets      or   liabilities        and

resulting net worth because the information was not available to
                                    - 13 -

him.     Mr. Skinner informed Eckell, Sparks that Mr. Ross and Ms.

Hurley, as decedent’s financial advisers, were responsible for the

failure to file decedent’s tax returns.

Contested Will

       On June 9, 1992, the Glovers, through their attorneys, Lamb,

Windle & McErlane (Lamb, Windle), filed an appeal to the Orphans’

Court, challenging the probate of the 1989 will.              The Glovers

claimed that, after decedent executed the 1989 will on June 29,

1989,     the   will   had   been    altered   by   undated   handwritten

interlineations and cancellations but had not been republished or

properly reexecuted by decedent.

       After a hearing on the matter, the Orphans’ Court held that

the register of wills had incorrectly decided that the 1989 will

had been properly attested to and notarized.        On November 5, 1992,

the Orphans’ Court entered a decree vacating the June 7, 1991,

probate of the 1989 will and remanding the matter to the register

of wills.

        On December 2, 1992, the Glovers filed a caveat with the

register of wills, claiming that the 1989 will was invalid for the

following reasons:

             1.   Execution of the document was obtained by undue
        influence exerted by A. Richard Ross and Lynn Hurley and
        others who were in a confidential relationship with
        decedent;

             2.   Lynn Hurley is unfit to be entrusted with the
        administration of the estate * * * because of her failure
        to perform the duties entrusted to her by decedent and
                                   - 14 -

     mismanagement of decedent’s affairs, all of which
     resulted in financial loss to decedent, placing Ms.
     Hurley in a conflict of interest with the estate of
     decedent, which estate has a cause of action against Ms.
     Hurley for these breaches of duty and losses; * * *

     The register of wills granted nonsuit against the Glovers and

denied and dismissed the caveat. On February 1, 1993, the register

of wills again admitted the 1989 will to probate and granted

letters testamentary to Ms. Hurley.

     On April 29, 1993, the Glovers filed a petition with the

Orphans’ Court seeking the removal of Ms. Hurley as executrix and

the appointment of the Glovers as coexecutors of the will.               In

addition, the petition requested that Ms. Hurley (1) forfeit her

executrix’s commission, (2) be prohibited from transferring any of

her personal assets outside of the ordinary course of her daily

life without the permission of the court, and (3) be required to

file with the court a schedule listing (a) all of her personal

assets, (b) all transfers from the estate to her, Mr. Ross, and

several entities in which they together had an interest, and (c)

any outstanding loans from decedent’s or the estate’s accounts made

during the relevant period.

     In the petition, the Glovers asserted that they had examined

several   of   decedent’s   bank   and   brokerage   accounts   that   were

controlled by Ms. Hurley and Mr. Ross and that their examination

revealed that large sums of money deposited into those accounts had

been used for the personal benefit of Ms. Hurley and Mr. Ross.          The
                                     - 15 -

Glovers maintained that, even if those transfers were treated as

loans (as Ms. Hurley contended), Ms. Hurley, as executrix of the

estate, had a conflict of interest because she had made no attempt

to recoup the funds she took from decedent’s accounts.                   Moreover,

the Glovers alleged that Ms. Hurley had actively and fraudulently

attempted to conceal the indebtedness in order to further her own

interests.

       On May 3, 1993, the Orphans’ Court entered a preliminary

decree directing Ms. Hurley to show cause why she should not be

removed as executrix of decedent’s estate.                 The court also issued

a temporary restraining order against Ms. Hurley, enjoining her

from    (1)   participating         in    all     decisions       regarding     the

administration of the estate, (2) participating in all decisions

regarding the assets of the estate, (3) engaging or paying counsel

to   represent      the   estate,   (4)     claiming       any   compensation    as

executrix,    (5)     doing   any   other       act   as    executrix,    and   (6)

transferring any of her personal assets outside the ordinary course

of her daily life without permission of the court.                The restraining

order required Ms. Hurley to file with the court a schedule listing

all of her personal assets and an accounting of all transfers of

money or property from decedent’s bank accounts or from the estate

during the relevant periods.

       On June 22, 1993, the Orphans’ Court entered a decree removing

Ms. Hurley as executrix and appointing Kevin Holleran (an attorney
                                     - 16 -

specializing in estate administration) and the Wilmington Trust Co.

as administrators pro tem.            Before Ms. Hurley was removed as

executrix, she paid herself an executrix’s commission of $250,000

and a legacy of $50,000.         In addition, she paid attorney’s fees

totaling $247,500 to Eckell, Sparks.

      After being appointed by the Orphans’ Court, Mr. Holleran

conferred with Mr. Glover and the Glovers’ attorneys at the offices

of Lamb, Windle. Mr. Holleran reviewed Lamb, Windle files relating

to decedent’s affairs.      The Lamb, Windle files revealed that most

of decedent’s records had been destroyed shortly after her death.

      Mr. Glover expended time and money investigating decedent’s

estate.   He subpoenaed and obtained records from the financial

institutions    with     which   decedent       dealt.      The    records      were

voluminous.      There    were     pages   of   photocopies       of   checks   and

statements, diagrams, and charts.               It took approximately 1-1/2

years from the date of decedent’s death to put together the

evidence which was the foundation of the Glovers’ petition to have

Ms.   Hurley   removed.      Mr.    Holleran     believed    that      the   estate

benefited significantly from the information Mr. Glover gathered

through the discovery process in the actions brought by the Glovers

to contest the will and to remove Ms. Hurley.

      On July 30, 1993, the administrators pro tem. filed a civil

action against Ms. Hurley in the Court of Common Pleas, Chester
                               - 17 -

County, Pennsylvania (the court of common pleas), seeking damages

for fraudulent conversion (count I), unjust enrichment (count II),

and breach of fiduciary duty (count III).    The complaint alleged

that Ms. Hurley and Mr. Ross misappropriated up to $2.5 million

from decedent.

     On October 6, 1993, the Glovers filed a petition with the

Orphans’ Court appealing the decision of the register of wills to

probate the 1989 will.     The Glovers argued that the 1989 will

should not have been probated for the following reasons:   (1) Ms.

Hurley and Mr. Ross fraudulently induced decedent to sign the will;

(2) Ms. Hurley and Mr. Ross exercised undue influence over decedent

in connection with the will; (3) because of decedent’s physical and

mental state, decedent did not have the capacity to understand the

provisions of the will; and (4) decedent was unaware of several

significant facts (namely, the misappropriation by Ms. Hurley and

Mr. Ross) which would have changed the dispositions decedent made

in her will.

     The civil action filed by the administrators pro tem. and the

Glovers’ appeal were consolidated for trial and opinion in the

Orphans’ Court Division of the court of common pleas on November

19, 1993.

     On April 5, 1994, Ms. Hurley filed her account of the estate

with the Orphans’ Court.   On April 6, 1994, the administrators pro

tem. filed objections to Ms. Hurley’s account.   The administrators
                                   - 18 -

pro tem., among other things, objected to Ms. Hurley’s executrix’s

commission ($250,000) and the attorney’s fees paid to Eckell,

Sparks ($247,500).      Further, they requested that Ms. Hurley and

Eckell, Sparks be surcharged for the $125,000 they alleged Mr.

Glover spent on attorney’s fees while uncovering the acts of

concealment, obstruction, and malfeasance by Ms. Hurley and Eckell,

Sparks.      A hearing on the objections was deferred pending the

outcome of the civil action.

      On November 2, 1994, the Orphans’ Court issued an opinion and

decree nisi dismissing the Glovers’ appeal.         The opinion concluded

(1) that decedent was of a sound mind and possessed testamentary

capacity at the time of the execution of the 1989 will, and (2)

that the 1989 will was not the result of undue influence or fraud.

Consequently, the court found that the 1989 will was valid and

properly admitted to probate.      However, the Orphans’ Court entered

a judgment against Ms. Hurley and in favor of the administrators

pro   tem.   for   $1,383,603.32   ($1,058,603.32    for   restitution   to

decedent’s estate for breach of fiduciary duty owed, and $325,000

for interest on income tax and tax penalties, as a consequence of

her failure to turn over information to decedent’s accountant

needed to file timely tax returns and to make tax payments).

      On November 15, 1994, the Glovers filed exceptions to the

Orphans’ Court’s decree, requesting that the court change and/or

modify its decree to find (1) that the 1989 will was invalid for
                                  - 19 -

lack of due execution (i.e., it was a product of fraud, undue

influence, and lack of capacity); (2) that the interlineations were

invalid for lack of due execution; (3) that all fiduciary and

beneficial provisions in favor of Ms. Hurley were invalid and

should be stricken; and (4) that the appeal from probate be

sustained.

     On February 9, 1995, the en banc court of common pleas of

Chester, County, Pennsylvania, Orphans’ Court Division, entered an

opinion and order (the en banc court decision) rejecting the

arguments made in the exceptions filed by the Glovers and made its

decree final, upholding the validity of the 1989 will by decedent.6

     On March 6, 1995, the Glovers appealed the en banc court

decision to the Superior Court of Pennsylvania.           On January 11,

1996, the superior court filed its judgment, In re Estate of

Glover, 669 A.2d 1011 (Pa. Super. Ct. 1996), affirming in part and

reversing in part the en banc court decision.         The superior court

sustained the en banc court decision that the 1989 will was valid;

however,   it   reversed   the   Orphans’   Court’s   determination   with




     6
          On Dec. 9, 1994, Ms. Hurley filed a petition for relief
under ch. 11 with the U.S. Bankruptcy Court for the Eastern
District of Pennsylvania. The administrators pro tem. filed a
motion to dismiss pursuant to 11 U.S.C. sec. 1112(b) against Ms.
Hurley citing “bad faith”. After 5 months of litigation, the
bankruptcy court dismissed Ms. Hurley’s case “for cause” under 11
U.S.C. sec. 1112(b). Ms. Hurley appealed that decision to the
U.S. District Court for the Eastern District of Pennsylvania, but
in June 1995, she withdrew her appeal.
                                   - 20 -

respect to the validity of the $50,000 legacy to Ms. Hurley,

finding that the legacy was induced by fraud.7

     On April 17, 1996, the administrators pro tem. and Ms. Hurley

entered into a settlement agreement which disposed of all claims

possessed by the estate for acts committed by Ms. Hurley on or

before June 1, 1989.

     On March 26, 1999, the Orphans’ Court entered an opinion and

decree    dismissing    the    renewed      objections     filed     by   the

administrators pro tem. with respect to Ms. Hurley’s account of the

estate on the ground that those objections were disposed of in the

prior    proceeding   and   thus   barred   under   the   doctrine   of   res

judicata.    The administrators pro tem. then asked the superior

court for permission to appeal the Orphans’ Court’s dismissal of

their renewed objections to Ms. Hurley’s first and final account.

Their request was denied on June 15, 1999.

Suit Against Eckell, Sparks

     On March 13, 1995, the administrators pro tem. and the Glovers

(referred to collectively as the plaintiffs) filed an action in the

court of commons pleas against Eckell, Sparks seeking damages for

the actions and conduct of the law firm over the 4-year period from

June of 1989 to June of 1993.      The plaintiffs retained the law firm



     7
          On Feb. 6, 1996, the Glovers filed a petition for
allowance of appeal with the Supreme Court of Pennsylvania,
appealing the superior court’s Jan. 11, 1996, judgment. On Jan.
16, 1997, the Supreme Court denied the Glovers’ appeal.
                                       - 21 -

of   Fell   &    Spaulding     to    represent   them    in   the    action    on   a

contingency-fee basis.         In their complaint, the plaintiffs sought

(1) compensatory damages in the sum of $3.7 million, together with

interest and costs for malpractice committed by Eckell, Sparks in

connection with the drafting of the 1989 will and the antenuptial

agreement       (count   I);   (2)   the   sum   of   $340,270,     together   with

interest and costs for attorney’s fees incurred by the Glovers in

contesting the 1989 will (count II); (3) compensatory damages in

the form of reimbursement of the executrix’s commissions, bequests

to Ms. Hurley, and Eckell, Sparks’s attorney’s fees in the amount

of $547,500, together with interest and costs for malpractice

committed by Eckell, Sparks while representing decedent’s estate

(count III); (4) $857,000, together with treble damages, costs, and

reasonable attorney’s fees, for conduct by Eckell, Sparks that

violated the Federal Racketeer Influenced and Corrupt Organizations

Act (RICO) (count IV); and (5) punitive damages, alleging that

Eckell, Sparks’s conduct was “outrageous” and amounted to a “gross

and reckless disregard of the probable consequences and the harm

being inflicted on the Plaintiffs herein” (count V).

      On August 8, 1995, the Glovers and the administrators pro tem.

entered into an agreement to provide a method for allocating any

amount recovered from the lawsuit against Eckell, Sparks, as well
                                       - 22 -

as for allocating expenses in prosecuting the lawsuit.8                       The

parties agreed that the Glovers would receive 60 percent of any

recovery and would be responsible for 60 percent of the litigation

expenses. The estate would receive the remaining 40 percent of any

recovery and would be responsible for 40 percent of the litigation

expenses.

       On November 8, 1995, the court of common pleas entered an

order: (1) Dismissing count I relating to the predeath malpractice

claim, finding that (a) the complaint contained insufficient facts

to establish that Eckell, Sparks played a role in wrongdoings

committed by Mr. Ross and Ms. Hurley, and (b) the Glovers lacked

standing to assert the predeath malpractice claim set forth in

count I of the complaint; (2) dismissing count II, with prejudice,

relating to          the   recovery   of   the   attorney’s   fees   the   Glovers

incurred in the will contest, finding that the Glovers lacked

standing to assert the claim and that such a claim could not be

asserted separately but rather was a component of the damages

asserted in the main action (i.e., part of the damages resulting

from       Eckell,    Sparks’s   malpractice);     (3)   dismissing   count   III

relating to the postdeath negligence claim, finding there were

insufficient facts to establish negligence on the part of Eckell,



       8
          The agreement recites that the plaintiffs recognized
that it would be extremely difficult to accurately and precisely
allocate between the interests of the Glovers and the estate any
moneys received by way of either a jury verdict or settlement in
the lawsuit pending.
                                 - 23 -

Sparks9 and that the Glovers lacked standing to assert a claim for

any malpractice that Eckell, Sparks may have committed while

handling matters for the estate; (4) dismissing with prejudice

count IV, finding that the administrators pro tem. lacked standing

since they did not allege conduct covered by RICO, and that the

Glovers lacked standing to bring such an action under RICO against

Eckell, Sparks; and (5) dismissing with prejudice count V, finding

that a claim for punitive damages was not a separate cause of

action and that the plaintiffs had not alleged sufficient facts to

support   their    assertion   that   Eckell,    Sparks’s   conduct   was

“outrageous”.     The plaintiffs appealed to the superior court.

     The superior court affirmed the order of the lower court

except with regard to the dismissal of the predeath malpractice

claim by the administrators pro tem. against Eckell, Sparks.          The

superior court reversed and remanded the case for consideration of

that claim.

     On April 17, 2000, the Orphans’ Court, sua sponte, raised the

issue of the reasonableness of the compensation paid by the estate

to Ms. Hurley and Eckell, Sparks.         The Orphans’ Court entered an

opinion and decree requiring Ms. Hurley and Eckell, Sparks to repay

the amounts they had received from decedent’s estate.




     9
          The court, however, granted the administrators pro tem.
additional time to file an amended complaint to state adequate
facts establishing breach of duty and causation in count III.
                                        - 24 -

     On   April   24,   2000,      a    trial    of   the    Eckell,    Sparks    case

commenced in the court of common pleas.                 In early May 2000 the

administrators pro tem., the Glovers, and Eckell, Sparks entered

into a settlement whereby Eckell, Sparks agreed to pay $750,000 for

the release of all claims asserted in both the civil action and the

will contest.     Total litigation costs of $203,659 were incurred in

the action, resulting in a net recovery of $546,341.

Attorney’s Fees in Litigation of Decedent’s Estate

     The law firm of Lamb, Windle represented the Glovers with

respect to matters relating to decedent’s estate.                       Lamb, Windle

billed the Glovers $269,206; the estate paid the bill.                       Of the

amount    paid,   $91,192    was       for   services       performed    before   the

administrators pro tem. were appointed, and $178,014 was for

services performed after that appointment.

     The law firm of Gawthrop, Greenwood & Halsted represented the

administrators pro tem. on the matters regarding Ms. Hurley and

Eckell,    Sparks.      A   letter      dated     August     28,   2000,    reflects

attorney’s fees of $206,024.27 related to the Hurley matter and

$18,205.50 related to the Eckell, Sparks matter.

     Mr. Glover was actively involved in all litigation involving

the estate.   He maintained a detailed log on time spent on matters

relating to the estate.       Mr. Glover estimated that he spent 1,858

hours on estate matters. He was not employed by the administrators

pro tem. or their law firm to assist them with estate matters.
                               - 25 -

                               OPINION

     Section 2001(a) imposes an estate tax on the taxable estate of

every decedent who is a citizen or resident of the United States.

A decedent’s taxable estate is determined by determining the value

of the decedent’s gross estate and by deducting therefrom those

deductions provided for in sections 2053 through 2056.       Sec. 2051.

The gross estate of a decedent is determined by including the value

(at the date of the decedent’s death) of the decedent’s interest in

all property, real or personal, tangible or intangible, wherever

situated.   Secs. 2031(a), 2033.

     In this case, one of the issues presented is determining (for

purposes of determining the value of decedent’s gross estate) the

value of an interest which decedent possessed in a malpractice

claim against Eckell, Sparks as of the date of her death.             The

parties have fashioned a formula for computing the value of that

interest.   They have agreed that the starting point in determining

the value of that interest is a post mortem settlement, made almost

9 years after decedent’s death. While normally we would not attach

such importance, if any, to an event or transaction occurring

almost 9 years after decedent’s death in determining a date-of-

death value for an asset owned by a decedent, in this case we do so

because of the parties’ stipulation.

     Essentially,   the   parties   have   agreed   that   the   $750,000

settlement represented the gross value as of the date of settlement
                                  - 26 -

of all claims asserted against Eckell, Sparks.               Accepting the

parties’ agreed $750,000 starting gross valuation for the claims,

we are asked by the parties to determine whether any portion of the

$750,000 starting point valuation is to be allocated to interests

that    decedent   did   not   possess    at   the   date   of   her   death.

Specifically, we decide whether any part of the $750,000 should be

allocated to the value of (1) the estate’s claim for the return of

the $247,50010 of legal fees paid by decedent’s estate for services

rendered in connection with the administration of decedent’s estate

and/or (2) claims of the residuary beneficiaries for malpractice;

and if so, the amount thereof.           We must further decide whether

payments made by decedent’s estate to attorneys representing the

Glovers, as the residuary beneficiaries, and any possible future

payment by the estate to Mr. Glover for his efforts in discovering

the misappropriation of decedent’s assets by Ms. Hurley and Mr.

Ross are deductible either as administrative expenses pursuant to

section 2053(a)(2) or as claims against the estate pursuant to

section 2053(a)(3).




       10
          We use the $247,500 amount because, as indicated supra
note 2, the actual amount of fees paid and ordered returned to
the estate was $247,500. Additionally, this greater amount is
the amount used by both parties in their briefs.
                                    - 27 -

Issue 1.     Whether Portions of the $750,000 Settlement for Claims
             Against Eckell, Sparks Are Attributable to the Value of
             the Estate’s Claim for the Return of Attorney’s Fees That
             the Orphans’ Court Ordered Returned to Decedent’s Estate
             and/or Attributable to the Value of the Glovers’ Claims
             Against the Firm

       The administrators pro tem. and the Glovers filed a civil

action against Eckell, Sparks, alleging that Eckell, Sparks (1)

committed malpractice in connection with the drafting of decedent’s

will   and   antenuptial    agreement   (count      I),   as    well    as     while

representing decedent’s estate (count III); (2) was liable for the

attorney’s fees incurred by the Glovers in contesting decedent’s

will (count II); (3) violated the RICO (count IV); and (4) was

liable for punitive damages (count V).         The lower court dismissed

all counts either for lack of standing or for failure to allege

sufficient facts to support these claims.           On appeal, the superior

court reversed and remanded the lower court’s dismissal of the

predeath     malpractice    claim    against     Eckell,       Sparks    by     the

administrators pro tem.      The superior court affirmed the order of

the lower court in all other respects.

       On April 17, 2000, the Orphans’ Court, sua sponte, entered an

opinion and decree ordering Eckell, Sparks to repay the $247,500

the law firm had received from decedent’s estate.              The trial of the

civil action brought by the administrators pro tem. against Eckell,

Sparks     commenced   in   April   2000.      In    early      May     2000     the

administrators pro tem., the Glovers, and Eckell, Sparks entered

into a settlement whereby Eckell, Sparks agreed to pay $750,000 for
                                       - 28 -

the release of all claims asserted in both the civil action and the

will contest, which included the liability for the return of the

$247,500 of attorney’s fees.

     Total litigation costs of $203,659 were incurred in the

action, resulting in a net recovery of $546,341.                 Pursuant to the

agreement between the estate and the Glovers, the estate’s 40-

percent portion of the net proceeds would be $218,536 (rounded).

The estate   argues       that   the    Glovers’    60-percent     share   of    the

settlement and the $247,500 of attorney’s fees that the Orphans’

Court ordered Eckell, Sparks to return to the estate should be

excluded from the $750,000 settlement that the parties stipulated

represents   the    starting       point   for     determining     the   value   of

decedent’s interest in the malpractice claim on the date of her

death.

     For purposes of determining the value of a decedent’s gross

estate within the purview of section 2033, the term “property”

encompasses choses in action.            United States v. Simmons, 346 F.2d

213 (5th Cir. 1965); Bank of Cal. v. Commissioner, 133 F.2d 428

(9th Cir. 1943), affg. in part and revg. in part Estate of Barneson

v. Commissioner, a Memorandum Opinion of this Court dated May 27,

1941; Estate of Curry v. Commissioner, 74 T.C. 540 (1980); Cobb v.

Commissioner,      T.C.    Memo.       1985-208;     Estate   of     Aldrich     v.

Commissioner,      T.C.    Memo.       1983-543;    Estate    of    Biagioni     v.

Commissioner, T.C. Memo. 1981-660; Duffield v. United States, 136
                                - 29 -

F. Supp. 944 (E.D. Pa. 1955).      The contingent nature of a claim

bears on the question of the value of the claim, not on its

includability in a decedent’s gross estate.          Estate of Curry v.

Commissioner, supra at 546.

     Claims arising from events occurring after a decedent’s death,

(1) are those of the estate, (2) have not passed to the estate from

the decedent,    and   consequently,   (3)   are   not   included   in   the

decedent’s gross estate.    Conn. Bank & Trust Co. v. United States,

465 F.2d 760 (2d Cir. 1972) (property interest arising after the

decedent’s death is not property owned at death and not part of the

gross estate under section 2033); Mandel v. Sturr, 266 F.2d 321 (2d

Cir. 1959).

     In the case at hand, the malpractice action against Eckell,

Sparks that related to the law firm’s handling of decedent’s

affairs during her life is an interest that decedent possessed as

of the date of her death.     However, that part of the malpractice

action relating to the return of the fees paid by the estate to

Eckell, Sparks during Ms. Hurley’s administration of the estate is

not an interest that decedent possessed on the date of her death

because it arose from events occurring and for services rendered

after decedent’s death.    Any claim for such wrongdoings belongs to

the estate.     Similarly, the value of any claim by the Glovers

against Eckell, Sparks is not included in decedent’s gross estate
                                     - 30 -

because decedent possessed no interest in such a claim as of the

date of her death.

     1.      Fees of $247,500 Ordered by Court To Be Returned to
             Estate

     Respondent acknowledges that decedent’s gross estate should

not be increased by the return of the $247,500 of attorney’s fees

paid by the estate to Eckell, Sparks during the administration of

the estate, as ordered by the Orphans’ Court. Respondent contends,

however, that because the settlement agreement among the law firm,

the administrators pro tem., and the Glovers failed to allocate the

settlement among the estate’s cause of action for the return of the

fees, the Glovers’ claims, and decedent’s cause of action for

malpractice, there is no way of determining what part, if any, of

the $750,000 settlement represents repayment of the $247,500 in

attorney’s fees.        We disagree.

     When,    as   in    this   case,   a   settlement   agreement   does   not

allocate the settlement among claims, the “intent of the payor” in

making the payment is an important factor in determining the

amounts properly allocable to the various claims.                Knuckles v.

Commissioner, 349 F.2d 610, 613 (10th Cir. 1965), affg. T.C. Memo.

1964-33; Agar v. Commissioner, 290 F.2d 283, 284 (2d Cir. 1961),

affg. per curiam T.C. Memo. 1960-21; Metzger v. Commissioner, 88

T.C. 834, 847-848 (1987), affd. without published opinion 845 F.2d

1013 (3d Cir. 1988).            If the payor’s intent cannot be clearly

discerned from the settlement agreement, the payor’s intent must be
                                 - 31 -

determined from all the facts and circumstances of the case.

Factors to be considered include the details surrounding the

litigation in the underlying proceeding, the allegations contained

in the payee’s complaint and amended complaint in the underlying

proceeding, and the arguments made in the underlying proceeding by

each party.   See, e.g., Estate of Morgan v. Commissioner, 332 F.2d

144, 150-151 (5th Cir. 1964), affg. in part and revg. in part 37

T.C. 31 (1961);    Threlkeld v. Commissioner, 87 T.C. 1294, 1306

(1986), affd. 848 F.2d 81 (6th Cir. 1988); Bent v. Commissioner, 87

T.C. 236, 245 (1986), affd. 835 F.2d 67 (3d Cir. 1987).            No single

factor is determinative; rather, in a given case, a factor may be

ignored or be deemed persuasive.      Threlkeld v. Commissioner, supra

at 1306.

     With these principles in mind, we analyze the Eckell, Sparks

settlement agreement.

     First, we are mindful that respondent was not a party to the

lawsuit that resulted in the order of the Orphans’ Court requiring

Eckell, Sparks    to   return   the   $247,500   in   attorney’s    fees   it

received from the estate.       Therefore, res judicata or collateral

estoppel does not apply.    Commissioner v. Estate of Bosch, 387 U.S.

456, 463 (1967).       Second, the decision of the Orphans’ Court

requiring Eckell, Sparks to return the fees is not the decision of

the State’s highest court.        Consequently, the Orphans’ Court’s

determination of Pennsylvania law is not per se conclusive for
                                       - 32 -

Federal estate tax purposes.           Id. at 465.   But we should and will

give “proper regard” to the Orphans’ Court’s interpretation of

Pennsylvania substantive law.           Id.

     We believe that the order of the Orphans’ Court directing

Eckell, Sparks to repay the fees received from the estate had a

major bearing on the law firm’s decision to make the $750,000

settlement payment and that the order should be given significant

weight   with   respect   to     the    apportionment    of   the   settlement

proceeds.   The $750,000 was intended to settle all claims made

against Eckell, Sparks, including the estate’s claim for the return

of the $247,500 of fees.          Indeed, had Eckell, Sparks failed to

repay the entire $247,500, it would have been in contempt of the

order of the Orphans’ Court.

     The totality of the uncontradicted evidence in this case

persuades us that it was the intent of Eckell, Sparks to have

$247,500 of     the   $750,000    settlement    amount   be   for   (and   thus

$247,500 should be allocated to) the attorney’s fees that the

Orphans’ Court ordered be returned to the estate, leaving the

balance of the $750,000 settlement to be allocated among all other

claims involved in the proceedings. In this regard, we are mindful

that the $247,500 paid to Eckell, Sparks by the estate came from

funds that had been included in determining decedent’s gross
                                - 33 -

estate.    Were we not to make this allocation, decedent’s gross

estate would be increased by the repaid fees, which in essence

would cause the $247,500 to be taxed twice.11

     2.    Amount Distributed to Glovers Under Plaintiffs’ Agreement

     We now turn our attention to whether any part of the $750,000

settlement should be allocated to the Glovers’ claim, which would

have the effect of reducing decedent’s interest in the malpractice

claim.

     The only claim made in the lawsuit that relates specifically

to the Glovers (rather than to Eckell, Sparks’s malpractice in the

preparation of the will or in connection with the administration of

the estate) is count II.    In count II, the plaintiffs claimed that

Eckell, Sparks was liable for $340,270, together with interest and

costs for attorney’s fees incurred by the Glovers in contesting

decedent’s will.     The trial court dismissed this claim, with

prejudice, finding that the Glovers lacked standing to assert the

claim.    The court additionally found that the claim could not be

asserted separately but rather was a component of the damages

resulting from the malpractice, if any, committed by Eckell, Sparks

in preparing the will.     (Damages resulting in the malpractice, if

any, committed by Eckell, Sparks in preparing decedent’s will



     11
          Decedent’s estate agrees that attorney’s fees of
$247,500 paid to Eckell, Sparks that the Orphans’ Court ordered
be returned to the estate are not deductible as administrative
expenses under sec. 2053(a)(2).
                                 - 34 -

constituted a claim that decedent possessed at the date of her

death.   And, as noted previously, the value of any such claim is

included in decedent’s gross estate.        (But see infra pp. 40-51 for

deduction of attorney’s fees as an administration expense under

section 2053(a)(2).)    Although the decision of the superior court

is not the decision of the State’s highest court, and hence is not

per se conclusive for Federal income tax purposes, we should and

will give proper regard to the superior court’s interpretation of

Pennsylvania substantive law.

     Aside from the $247,500 which the Orphans’ Court ordered

returned to the estate, the evidence convinces us that no portion

of the $750,000 settlement amount should be allocated to the value

of any matter other than the malpractice claim that decedent

possessed at the date of her death.         We do not believe that the

Glovers had any meritorious claims against the law firm in their

own right.   To the contrary, the dismissal of all claims asserted

by the Glovers against Eckell, Sparks (on the grounds that the

Glovers lacked standing to bring any claims) is strong indication

that the value of the Glovers’ claims was negligible at best.

     As stated, the parties stipulated that the $750,000 settlement

represents   the    starting   point   in   determining   the   value   of

decedent’s interest in the malpractice claim as of the date of

decedent’s death.    We therefore hold that $502,500 ($750,000 less

$247,500 allocated to the return of fees) is the gross value of
                                       - 35 -

decedent’s     interest   in    the    malpractice   claim   against   Eckell,

Sparks.    Pursuant to the parties’ agreement, this $502,500 should

be   reduced    by   $203,659    for    legal   costs   in   prosecuting   the

malpractice, leaving a net value of $298,841.                Pursuant to the

parties’ agreement, we next must multiply the $298,841 net amount

by .438233 (the present value factor), leaving $130,962 (rounded)

as the value of decedent’s interest in the malpractice claim as of

the date of death.

Issue 2.     Whether That Portion of the Proceeds From the Settlement
             of Claims Against the Law Firm of Eckell, Sparks Paid to
             the Residuary Beneficiaries Is a Deductible Expense in
             Determining Decedent’s Taxable Estate

      Decedent’s estate argues that, if we determine that no portion

of the $750,000 settlement is allocable to the Glovers’ claim, then

the portion (60 percent) of the Eckell, Sparks settlement proceeds

payable to the Glovers pursuant to the plaintiffs’ agreement is

deductible (in determining decedent’s taxable estate) either as an

administration expense within the meaning of section 2053(a)(2) and

section 20.2053-3(c)(3), Estate Tax Regs., or as a claim against

the estate within the meaning of section 2053(a)(3) and section

20.2053-1(a)(1), Estate Tax Regs.           We disagree.

      An estate may deduct as claims against the estate only those

claims that are “enforceable against the decedent’s estate” and

only those amounts that “represent personal obligations of the

decedent existing at the time of his death”.                 Sec. 20.2053-4,

Estate Tax Regs.      The plaintiffs’ agreement was not an obligation
                                       - 36 -

of decedent existing at the date of her death.                Therefore, the 60

percent of the settlement proceeds payable to the Glovers under

that agreement is not deductible as a claim against the estate

within the meaning of section 2053(a)(3).

      Moreover,     when    founded     on    a   promise    or   agreement,       the

deduction for a claim against an estate is allowed only to the

extent that the claim was contracted bona fide and for an adequate

and   full      consideration    in     money     or    money’s     worth.      Sec.

2053(c)(1)(A); sec. 20.2053-4, Estate Tax Regs.                   The “bona fide”

and “consideration” elements in section 2053(c)(1)(A) are related

but separate requirements; and if either is missing, the deduction

fails.     Estate of Scholl v. Commissioner, 88 T.C. 1265, 1279

(1987).    The requirement of an adequate and full consideration in

money or money’s worth may not be predicated solely on the fact

that the contract is enforceable under State law. United States v.

Stapf,    375     U.S.   118,   130-131       (1963).       The   requirement       of

“‘consideration in money or money’s worth’ * * * invokes a higher

standard of consideration than that required to establish the

validity of a contract under State law”.                    Estate of Carli v.

Commissioner, 84 T.C. 649, 658 (1985).

      A   State     trial   court      decree     having    Federal    estate      tax

implications does not automatically bind the Commissioner if the

Commissioner was not a party to the proceeding.                   Commissioner v.

Estate    of    Bosch,   387    U.S.    456     (1967);    Estate     of   Rowan    v.
                               - 37 -

Commissioner, 54 T.C. 633, 636-637 (1970).      This principle applies

specifically to the estate tax deductibility of items listed in

section 2053(a),   including   administrative    expenses   and   claims

against the estate.   United States v. White, 853 F.2d 107, 113-115

(2d Cir. 1988); Estate of Lewis v. Commissioner, 49 T.C. 684, 688

(1968).

     Section 20.2053-1(b)(2), Estate Tax Regs., describes how a

court decree affects estate tax deductions under section 2053(a):

     The decision of a local court as to the amount and
     allowability under local law of a claim or administration
     expense will ordinarily be accepted if the court passes
     upon the facts upon which deductibility depends. If the
     court does not pass upon those facts, its decree will, of
     course, not be followed. For example, if the question
     before the court is whether a claim should be allowed,
     the decree allowing it will ordinarily be accepted as
     establishing the validity and amount of the claim.
     However, the decree will not necessarily be accepted even
     though it purports to decide the facts upon which
     deductibility depends. It must appear that the court
     actually passed upon the merits of the claim. This will
     be presumed in all cases of an active and genuine
     contest.     If the result reached appears to be
     unreasonable, this is some evidence that there was not
     such a contest, but it may be rebutted by proof to the
     contrary. If the decree was rendered by consent, it will
     be accepted, provided the consent was a bona fide
     recognition of the validity of the claim (and not a mere
     cloak for a gift) and was accepted by the court as
     satisfactory evidence upon the merits.        It will be
     presumed that the consent was of this character, and was
     so accepted, if given by all parties having an interest
     adverse to the claimant. The decree will not be accepted
     if it is at variance with the law of the State; as, for
     example, an allowance made to an executor in excess of
     that prescribed by statute.       On the other hand, a
     deduction for the amount of a bona fide indebtedness of
     the   decedent,   or   of   a   reasonable   expense   of
     administration, will not be denied because no court
                                      - 38 -

      decree has been entered if the amount would be allowable
      under local law.

      Clearly, if a local court does not adjudicate the merits of a

claim, which typically would be the case in a nonadversarial

proceeding, the presumption that the decision of the local court on

allowability “will ordinarily be accepted” does not apply. Wolfsen

v. Smyth, 223 F.2d 111, 113-114 (9th Cir. 1955); First-Mechanics

Natl. Bank v. Commissioner, 117 F.2d 127, 129-130 (3d Cir. 1940),

affg. 40 B.T.A. 876 (1939); sec. 20.2053-1(b)(2), Estate Tax Regs.

To   this   end,   in   this   case,    a    State   court    has   not    made   an

independent review of the proposed allocation of the settlement of

the Eckell, Sparks malpractice case as set forth in the plaintiffs’

agreement.    But the State courts did find that the Glovers lacked

standing with respect to all claims made against Eckell, Sparks.

      The   Glovers     and    the    administrators      pro   tem.      were    not

adversaries with respect to the claims against Eckell, Sparks, the

dollar   amount    contained     in    the   settlement      agreement,     or    the

allocation memorialized in the agreement between the Glovers and

the administrators pro tem.

      Decedent’s estate would face additional hurdles even if the

record did show that a State court had passed on the merits of the

claims and that the highest court of Pennsylvania would allow the

claims against the estate.            Section 20.2053-1(b)(2), Estate Tax

Regs., is to be construed in harmony with section 2053(c)(1)(A),

which requires claims founded on a promise or agreement to be
                                    - 39 -

“contracted bona fide and for an adequate and full consideration in

money or money’s worth”.        As noted heretofore, “adequate and full

consideration” for purposes of section 2053(c)(1)(A) is a higher

standard of consideration than that required to establish the

validity of a contract under State law.                Estate of Carli v.

Commissioner, supra. The record is devoid of any evidence that the

Glovers’ claim for 60 percent of the settlement proceeds was

contracted for an adequate and full consideration in money or

money’s worth.     Indeed, aside from dubious RICO claims and claims

for punitive damages, the damages related to the Glovers’ claims

against Eckell, Sparks (attorney’s fees of $340,270, together with

interest and costs) are substantially less than the damages related

to decedent’s claims and those of the estate (e.g., over $1 million

related to the claim of malpractice in preparing the will).               To be

deductible as an administration expense, the regulations require

that the payment to the Glovers must have been “essential to the

proper settlement of the estate”.              Sec. 20.2053-3(c)(3), (a),

Estate Tax Regs.        We do not find that the payment to the Glovers

was   essential    to    the   proper   settlement   of   the   estate.     In

considering this matter, we are mindful that it is the duty of an

administrator to collect and protect assets of the estate.

      There   is   no    indication     that   the   specific   bequests    in

decedent’s will to beneficiaries other than the Glovers could not

be satisfied with the assets in decedent’s estate if the claims
                                     - 40 -

against Eckell, Sparks failed.           Any recovery by the administrators

pro   tem.     would   devolve      to    the   Glovers   as   the   residuary

beneficiaries.       All the claims raised in the suit were claims that

belonged to either decedent or the estate.                The 60/40 division,

instead of reflecting the merits of the coplaintiffs’ respective

claims, was in essence a vehicle for reducing the gross estate by

channeling to the Glovers funds that would go to them anyway as

residuary beneficiaries.         We hold, therefore, that the Glovers’

claim for 60 percent of the settlement proceeds is not deductible

as a claim against the estate or deductible as an administration

expense.

Issue 3.      Whether Payments Made by Decedent’s Estate to Attorneys
              Representing the Residuary Beneficiaries or To Be Paid to
              Mr. Glover for His Efforts in Discovering the
              Misappropriation of Decedent’s Assets by Ms. Hurley and
              Mr. Ross Are Deductible as Administrative Expenses
              Pursuant to Section 2053(a)(2) or as Claims Against the
              Estate Pursuant to Section 2053(a)(3)

      Decedent’s estate argues that the payments it made to the

Glovers’ attorneys and any payments it will make to Mr. Glover for

his efforts in discovering the misappropriation of decedent’s

assets   by    Ms.   Hurley   and   Mr.    Ross   constitute   administration

expenses within the meaning of section 2053(a)(2) and section

20.2053-3(c)(3), Estate Tax Regs.

      For estate tax purposes, the value of the gross estate is

reduced by amounts incurred for “administration expenses” that are

allowable by the laws of the jurisdiction under which the estate is
                                        - 41 -

being administered.       Sec. 2053; Estate of Swayne v. Commissioner,

43 T.C. 190 (1964).          The amounts deductible as administration

expenses    are   limited    to       such   expenses     as    are     actually    and

necessarily   incurred      in    the    administration         of    the   decedent’s

estate.     Sec. 20.2053-3(a), Estate Tax Regs.                      Expenditures not

essential to the proper settlement of the estate but incurred for

the individual benefit of the heirs, legatees, or devisees are not

allowed as deductions.       Id.       Further, attorney’s fees incurred by

beneficiaries     incident       to    litigation    as    to    their      respective

interests are not deductible if the litigation is not essential to

the proper settlement of the estate.              Sec. 20.2053-3(c)(3), Estate

Tax Regs.

     Respondent concedes that the services provided by Mr. Glover

and the Glovers’ attorneys led to the discovery of Ms. Hurley’s

misappropriation    and     the       Eckell,    Sparks   malpractice,        and   the

removal of Ms. Hurley as executrix.               Respondent also agrees that

the services were essential to the proper settlement of the estate.

Respondent argues, however, that services provided by the attorneys

for the Glovers’ will contest and for the attorneys’ involvement in

the malpractice litigation were unnecessary to the settlement of

the estate and were primarily for the personal benefit of the

Glovers.    Furthermore, respondent contends that the record in this

case does not establish the portion of the fees allocable to the
                                  - 42 -

various services provided, and, therefore, no portion of the fees

should be allowed as a deduction. Respondent concludes, therefore,

that the fees for those services are not deductible.

     In the case at hand, we are satisfied that payment of a

portion of the Glovers’ attorney’s fees incurred in the will

contest and payment of reasonable compensation to Mr. Glover for

services he provided to the benefit of the estate are permitted

under Pennsylvania law. In considering this matter, we are mindful

that it is the duty of an administrator to collect and protect the

assets of the estate and that the administrator is justified in

employing   an   attorney   or   other   third    parties   to    assist   the

administrator in collecting or protecting the assets of the estate.

     Under Pennsylvania law, the exceptant to the account of an

administrator    ordinarily   must   pay    his   own   counsel   fees.     In

exceptional cases, however, the exceptant may be allowed counsel

fees payable out of estate funds.          In re Estate of Lux, 389 A.2d

1053 (Pa. 1978).   Where the efforts of an exceptant and his counsel

result in the substantial benefit to the estate, such as requiring

an administrator to include in the inventory of the estate valuable

assets previously not included, it is within the discretion of the

Orphans’ Court to compensate the exceptant and his counsel out of

estate funds.    Id.; see also In re Estate of Vaughn, 461 A.2d 1318,

1320 (Pa. Super. Ct. 1983).

     [D]enial of compensation for * * * [the exceptant’s]
     attorney’s fees out of estate funds * * * [would] permit
                              - 43 -

     the other heirs, who have never filed exceptions, to reap
     the benefits of the efforts of * * * [the exceptant’s]
     counsel without having to share in the expense of
     producing those benefits. This would be a manifestly
     unreasonable and inequitable result. * * *

In re Estate of Vaughn, supra at 1320; see also Commonwealth ex

rel. Hensel v. Order of Solon, 44 A. 327, 328 (Pa. 1899) (where the

attorney of one of several parties, all equally interested, secures

a fund which would otherwise have been misappropriated or lost, and

all share equally in the distribution, it is but equitable that all

should share in the expense which produced the fund, although but

one moved in the matter).    “Under the circumstances * * * [the

beneficiary] must be allowed reasonable counsel fees out of the

estate funds.”   In re Estate of Vaughn, supra at 1321.

     We conclude that under Pennsylvania law, Mr. Glover would be

entitled to reasonable compensation for services he rendered for

the benefit of the estate.     See, e.g., id. at 1320 (where the

executor, a beneficiary of the estate, expended extra effort in a

role separate and distinct from his role as executor, he was

entitled to fair and reasonable compensation for his additional

services).   Paying a beneficiary, instead of a third party, for

services rendered is not unfair to the estate.     Id.

     “In Pennsylvania, the test for determining the appropriateness

of the fees charged for services rendered in the administration of

an estate has always been ‘reasonableness’.”     Estate of Phillips,

616 A.2d 667, 668 (Pa. Super. Ct. 1992) (citing In re Estate of
                                   - 44 -

Burch, 586 A.2d 986, 987 (Pa. Super. Ct. 1991)).             We are of the

opinion that a Pennsylvania court would uphold the estate’s payment

for Mr. Glover’s services if there is sufficient evidence to

conclude that the payment was fair and reasonable even though Mr.

Glover was a beneficiary of the estate.        See, e.g., Estate of Getz,

618 A.2d 456, 460-462 (Pa. Super. Ct. 1992); In re Estate of

Vaughn, supra at 1320.

     The services rendered by Mr. Glover and his attorneys resulted

in the recovery of a significant sum for the estate. Consequently,

we find it is proper for the administrators pro tem. to pay from

estate funds the fees for services rendered before the Orphans’

Court    removed   Ms.    Hurley   as     executrix    and   appointed      the

administrators pro tem. See, e.g., Estate of Bruner, 691 A.2d 530,

535 (Pa. Super. Ct. 1997); In re Estate of Vaughn, supra.            Indeed,

respondent acknowledges that the amount incurred for services

rendered before that time by Mr. Glover’s attorneys is $91,192.

     A   beneficiary     who   seeks    compensation   has   the   burden    of

demonstrating that the amount requested is just and reasonable. In

re Estate of Salus, 617 A.2d 737, 742-743 (Pa. Super. Ct. 1992);

Estate of Phillips, supra. The Orphan’s Court can fashion an award

of just and reasonable compensation provided there is evidence of

the services provided.         But when the compensation awarded is

without support in the record, the award cannot stand.             In re Reed

Estate, 341 A.2d 108 (Pa. 1975).
                                    - 45 -

     Mr. Glover has asked the estate to compensate him for 1,858

hours of his services at the rate of $90 per hour for total

compensation of $167,220.         He provided time records showing the

dates he worked on matters related to the estate and the time he

expended on those matters.        Mr. Holleran testified at the trial in

this case that the time Mr. Glover expended in reconstructing

decedent’s accounts and tracking the funds misappropriated by Ms.

Hurley and Mr. Ross provided substantial benefit to the estate.

Mr. Holleran’s testimony was uncontroverted.         Mr. Glover, however,

did not testify at the trial in this case, and the time records he

provided   to    Mr.   Holleran   generally    reflect   activity   commonly

associated with the activities of a party to litigation, e.g.,

meetings and conversations with his attorneys and preparation for

and attendance at depositions and hearings.              Upon reviewing Mr.

Glover’s time records, we are convinced that most of the time for

which he seeks compensation was expended in pursuing his challenge

of the validity of the will and specifically the bequest resulting

from the interlineation that gave the farm to the Pierces and the

bequest of $1 million to the University of Pennsylvania.            However,

284.15   hours    of   Mr.   Glover’s   time   (detailed   as   follows)   is

attributable to reconstructing decedent’s accounts and tracking the

funds misappropriated by Ms. Hurley and Mr. Ross, and we therefore

hold that the amount for these services is deductible:
                                       - 46 -
Date            Description                                      Hours Claimed

9/4/91     Conv. w/Joe Monte on estate accts; Pierce loan,
            back taxes due                                             .50
9/26/91    Meet w/Hurley; Change of will, unpaid tax                  2.00
10/18/91   Ltr. to Lynn Hurley on missing personal items               .50
2/20/92    Conv. w./Tracy on procedure to object to account,
            Endy’s decree; fax decree to Tracy                         .33
4/6/92     Mtg. w/Monte on Margin acct., etc.                         2.25
7/13/92    Hurley; Jayne K, investment of est. assets, acctg.          .33
7/15/92    Langdon; Ross                                               .50
10/14/92   Skinner; Ross, Hurley, recordkeeping, his work              .50
11/18/92   Send fax to Craig; Conv w/Skinner on work, tax
            returns                                                   2.25
11/19/92   Cheltenham Bank; FCG, Ross’s business                       .50
1/4/93     Skinner; On Ross, taxes, etc.                               .66
1/5/93     Langdon; Hurley Ross history; conv. w/Jayne on same
            Thomson’s address                                         1.25
1/13/93    Prep. for deposition; review Langdon info.; Conv.
            w/Thomson, FCG, Farm, Ross, Hurley, etc.                  1.66
1/15/93    Dr. Morgan; FCG health; Mtg w/Skinner; review
            records of returns, extensions, etc.                      4.33
1/23/93    Bill Thomson; Ross, Ice Cream B, records, etc.;
            review of Eckell docs.                                    4.50
1/24/93    Create summary of funds wired from brokerage accts.        2.50
2/2/93     Skinner; background info.                                   .50
3/4/93     Fax to Craig on Wilm Trust checks to Pierces; Conv.
            w/Craig; Review checks, etc.                               2.25
3/4/93     Review Comm Fed checks for 14170; Tabulate a
            summary of noteworthy checks                               4.50
3/5/93     Catalogue checks                                            4.50
3/5/93     Ltr & fax to Craig & Guy on initial results of
            reviewing FCG’s Comm Fed acct 14170                        2.50
3/8/93     Ltr to Gordon & Katherine explaining that initial
            review of Comm Fed checks reveal theft; research           6.50
                                      - 47 -
Date           Description                                        Hours Claimed

4/16/93   Conversation w/Clearwater records; summarize Wilm.
           Trust checks                                                6.75
4/16/93   Enter Comm. Fed checks from both accts into framework
           spreadsheets                                                8.50
4/17/93   Summarize Comm. Fed checks and contrast w/Hurley
            deposition                                                 6.50
4/18/93   Finish drafting memo contrasting Hurley’s depo to
            financial records; mail to Craig                           8.50
4/20/93   Further review of Comm Fed checks; Ltr to Alice
           Bucha on missing cks; Ltr listing accts involved
           w/FCG                                                       3.00
4/21/93   Review summary w/Tracy, conver w/Craig; Send
           summary of Comm Fed accts to G&K                            2.25
5/6/93    Fax to Craig listing accts; Comm Fed representative
           needed to identify                                           .50
5/13/93   Meet w/Craig & Guy; review checks                            4.00
5/14/93   Transfer spreadsheet info to Excel; Update summary;
           review cks w/Craig                                          7.00
5/17/93   Review cks w/Craig                                           2.50
6/1/93    Update spreadsheets on Comm Fed accts incorporating
           Hurley testimony; Conv. w/Craig                             2.50
6/10/93   Meet w/Gordon & Craig in prep for hearing; Create
           flow chart for FCG’s Comm Fed accts.                       10.75
6/11/93   Meet w/Craig & Guy to prepare for hearing;
           finalize flow chart, summaries                             12.25
7/14/93   Review Fidelity checks w/Craig                               1.00
7/19/93   Conv. w/Mark; Answer Mark’s questions on accounts;
           hear estate position                                         .50
7/22/93   Conv. w/Craig & Mark; request Hurley be dismissed
           from U.P. Trust, include Ross in complaint, review
           administrator position                                       .50
7/22/93   Copy & send Mark T. brokerage records w/summaries            1.50
7/28/93   Begin to tabulate Fidelity estate acct checks                2.00
                                       - 48 -
Date            Description                                        Hours Claimed

7/29/93    Tabulate & review est acct chks, draft list of accts
            to investigate, prepare for will contest, Eckell
            claim                                                       5.75
8/2/93     Ltr to Mark T & Craig on Fidelity Bank accts.                1.00
9/20/93    Review of Fidelity cks sent by Mark Tunnell; ltr. to
            Baumeister w/copy of adm. complaint                         2.50
9/21/93    Review of Fidelity cks; summary ltr to Tunnell               3.20
10/29/93   Prepare summary of Lynn’s sch of assets; fax to Mark
           & Craig on Ms. Hurley’s sch of assets                        1.75
11/9/93    Review Merrill CMA’s & Comm. accts of Hurley &
            friends; begin summary ltr.                                 6.00
11/10/93   Finish reviewing accts, ltr to Tunnell, fax Bucha            3.00
11/12/93   Review Fidelity accts, ltr to Tunnell; review estate
            acct w/D. Scarlett                                          1.50
11/21/93   Review Del Trust statements                                  1.00
11/22/93   Review Fidelity accts, Com Fed accts, docs for
            Hurley’s deposition                                         6.50
11/23/93   Review Fidelity accts, Com Fed accts, docs for
            Hurley’s deposition                                         9.10
12/31/93   Summary of ‘85 & ‘86 wires, create flow chart; review
            acctg, ltr to Craig, copy to Mark                           5.50
1/21/94    Review info on Hurley/Ross jt acct w/Craig & R III;
            general review                                              5.25
1/22/94    Summarize inflows of Del Trust acct per Tunnell’s
            request; conv. w/Mcllvane                                   5.50
1/23/94    Summarize inflows in letter to Tunnell                       6.75
2/15/94    Prepare for trial w/Craig & Guy; dinner w/Hurley             8.00
3/9/94     Finish fax of revision to brief, fax to Tracy; review
            Hurley accts 13669 & 14196, fax to Bucha                    6.25
3/10/94    Review Hurley accts 14196 & fax Bucha                        3.10
3/16/94    Review Comm accts summaries; prepare for case                3.10
3/21/94    Review courts checks, compare to summary, amend
            summary, prepare exhibts, etc.                              9.50
                                       - 49 -
Date            Description                                         Hours Claimed

9/30/94    Review Hurley Merrill statements; fax to Craig                1.50
12/29/94   Review w/Boulden Hurley & Ross’s various Co’s.;
           Mail copies of Emper’s notes & litigation on same;
            review Boulden’s fax                                         3.75
1/6/95     Rev Boulden’s ltr to Heckshire; FedEx info on appeal;
            copy & mail Hurley test. & sch. of assets to Tunnell
            as requested                                                 6.50
3/3/95     Review Boulden’s complaint, Heckscher ltr; begin to
            review Hurley pers. accts for Lubline                        4.50
3/4/95     Copy cks, transcript records for Lubline                      1.75
3/5/95     Copy records showing Hurley’s use of funds on RE for
            Lubline, enter into spreadsheet & ltr.                       6.33
3/8/95     Review complaint, answer Boulden’s ques.; Review ES
            docs; Search for Del Trust cks, fax to Tunnell Hurley
            questions                                                    5.25
6/8/95     Discuss settlement w/Hurley & Jim Draper; inform
            Tunnell & Lubline                                             .75
7/18/95    Review settlement agree, review Hurley’s schedules;
            discuss w/Boulden, review w/Tunnell                          1.50
8/22/95    Discuss settlement w/Hurley, Draper & Tunnell                 1.25
8/23/95    Rev settlement w/Lubline; Request Holleran to buy
            mtge on RD 6, discuss Pierce case w/Tunnell;
            discuss settlement w/Hurley                                  1.60
11/21/96   Per Boulden’s request, review Skinner, Newton &
            Enbon notes; Hurley notes                                    1.75
2/7/97     Assemble & organize docs per Boulden’s request for
            acct & Eckell suit                                           5.50
8/4/98     Conv w/Heckshire’s off; cpy PA & Fed estate & local
            tax returns and FedEx                                        1.75
10/21/98   Answer Ferrone’s Qs on Orphans Ct rept; copy joint
            prop section of estate tax return & bank accts               2.25
10/23/98   Review Orphan’s Ct record, Eckell records, FCG’s
            checking acct; fax Ferrone                                   1.33
                                       - 50 -
Date            Description                                         Hours Claimed

11/6/98    Review Heckshire’s rept; answer Ferrone’s quest;
            per Ferrone request, copy FCG/Hurley jt acct &
            estate acct statements                                       1.33
11/10/98   Per Ferrone’s request, review date of death brokerage
            accts to determine how 50,000 wire was accounted for;
            fax to Ferrone                                               1.00
11/17/98   Per Holleran’s request, copy & mail docs re: Eckett’s
            account & estate tax returns                                 2.00
1/7/99     Find, review & copy docs to respond to Eckell’s
            interrog.; review Hurley’s financial records                 5.50
1/8/99     Finish copying Hurley’s financial records, take all
            copies out for reproduction, draft answer for
            interrog.                                                    3.75
6/30/99    Conv: Tunnell on adjudication of acct schedule for
            civil case                                                   1.20
4/17/00    Per Tunnell’s request, review the check summaries
            made for case against will                                    .75
4/18/00    Per Tunnell’s request, get copies of check summaries
            diagrams, etc.; per Farrone’s request, review Cloud
            & Carter’s testimony                                         1.30

  Total                                                                284.15
                                   - 51 -

      Mr.   Holleran   testified    that    Mr.   Glover’s   services      were

comparable in value to the services of a paralegal and that

reasonable compensation for those services is $90 per hour.                 On

the basis of the record before us, we conclude that it is just and

reasonable for the estate to deduct, as an administrative expense

pursuant to section 2053(a)(2), $25,574 ($90 x 284.15 (rounded))

for services rendered by Mr. Glover, provided the payment for that

amount (or greater) is approved by the Orphans’ Court.                  In re

Estate of Salus, 617 A.2d 737 (Pa. Super. Ct. 1992); Estate of

Phillips, 616 A.2d 667 (Pa. Super. Ct. 1992).          On the other hand,

we conclude the estate is not entitled to deduct any amount in

excess of $25,574 for the remainder of Mr. Glover’s time because

any excess would be unrelated to the reconstruction of decedent’s

accounts or the illegal activities of Ms. Hurley and Mr. Ross.

Conclusion

      In summary,

      (1)   The value of decedent’s interest in her malpractice

claim against Eckell, Sparks as of the date of her death is

$130,962.

      (2)   The estate is entitled to deduct $91,192 of the Glovers’

attorney’s fees paid by the estate, and $25,574 for services of

Mr.   Glover,   provided   the   payments     for   these    items   (in   the

aforementioned amounts or greater) are approved by the Orphans’

Court.
                        - 52 -

To reflect the foregoing,



                                  Decision will be entered

                             under Rule 155.
