In the
United States Court of Appeals
For the Seventh Circuit

No. 99-3216

Mary E. Scott, Executor of the Estate
of Lucille M. Horstmeier, Deceased,

Petitioner-Appellant,

v.

Commissioner of Internal Revenue,

Respondent-Appellee.



Appeal from the United States Tax Court.
No. 19908-96--Joseph H. Gale, Judge.


Argued April 3, 2000--Decided September 8, 2000



      Before Flaum, Chief Judge, and Bauer and Williams,
Circuit Judges.

      Williams, Circuit Judge. The decedent, Lucille M.
Horstmeier and petitioner Mary E. Scott lived
together as a couple from 1974 to 1993.
Throughout their relationship, Scott handled
household maintenance and Horstmeier worked as a
successful business owner, providing significant
financial support to Scott. At issue in this
appeal is the ownership of the Glenview,
Illinois, home where the two lived but that
Horstmeier alone purchased.

      When Horstmeier died, Scott was appointed
executor of Horstmeier’s estate. In filing taxes
for the estate, Scott included only 50 percent of
the Glenview property’s value and deducted only
50 percent of the mortgage interest, claiming
that she personally had a resulting trust in the
property that gave her a 50 percent ownership
stake. The IRS disagreed and found that
Horstmeier owned 100 percent of the property at
the time of her death and, consequently, ruled
that 100 percent of the property’s value should
have been included in the estate and 100 percent
of the interest should have been deducted. Scott
then took the matter to federal tax court. The
tax court found that Scott presented insufficient
evidence to prove that a resulting trust existed
at the time of Horstmeier’s death and agreed with
the IRS’s tax deficiency determination. Scott now
appeals. Because we find that the tax court’s
findings were not clearly erroneous, we affirm.

I

      During the nearly 20 years that Horstmeier and
Scott lived together, they shared three different
homes. First, they lived in a Skokie condominium,
which Horstmeier purchased and held in her name.
Next, they moved to the Glenview home at issue
here. To purchase this home, Horstmeier put
$50,000 down and took out a mortgage for $55,000
in her name alone. Scott’s name does not show up
on any documents relating to this property. The
two lived in the Glenview home until Horstmeier’s
death on January 25, 1993. During that time, as
in the Skokie home, Scott did all the housework,
performed household maintenance, and managed the
couple’s finances. Horstmeier deducted 100
percent of the mortgage interest and real estate
taxes from the Glenview home on her own federal
taxes from 1975 to 1992.

      According to Scott, the two agreed that
Horstmeier would serve as the nominee for the
couple as joint owners of both the Skokie and
Glenview homes. They did this because Horstmeier
was a prominent business person in the Chicago
community, and at that time, their same-sex
relationship would have been condemned and could
have caused controversy. At the time that the
Glenview home was purchased, Scott had no assets
to contribute to the purchase and had no regular
source of income. She received some support from
her parents and took a few low-paying jobs from
time to time. In 1979, Scott began working as a
full-time employee at the school that Horstmeier
managed. Scott initially earned about $200 per
week and eventually made about $21,000 per year.
Still, the record contains no evidence that Scott
ever made any mortgage payments to the bank or
cash payments to Horstmeier specifically for her
share of the down payment on the Glenview home.
In fact, at one point, Horstmeier took out a
second mortgage on the Glenview home in order to
get money for her business. Scott objected, but
Horstmeier took the loan out anyway.

      The couple purchased a third home in Wisconsin
in 1979. This time, both Horstmeier and Scott
contributed to the down payment of approximately
$4000, and originally, the property was titled in
both their names. After Scott made all 36 monthly
mortgage payments, she ultimately took title to
the property in her name alone.

      When Horstmeier died in early 1993, Scott was
appointed the executor of Horstmeier’s estate. In
her will, Horstmeier did not provide instructions
concerning the Glenview home. Instead, the
property passed to Scott as the residuary
beneficiary of a trust to which Horstmeier
bequeathed her assets that were not required for
estate administration.

      In 1993, Scott filed a claim in probate court
seeking a 50 percent tenancy-in-common interest
in the Glenview home. She filed this claim in
response to an investigation into Horstmeier’s
business’s finances. Scott was concerned that the
Glenview property might be vulnerable to attack
by creditors. In support of her claim, Scott
maintained that (1) she and Horstmeier agreed
they would share expenses concerning the home and
(2) Horstmeier required Scott to pay $3000 per
year until she paid a total of $25,000, which
equaled one-half the down payment made when the
home was originally purchased. In addition, Scott
and Horstmeier shared expenses as agreed, but
Horstmeier actually forgave the required payment
and made an annual $3000 gift to Scott. The court
approved Scott’s claim without reaching the
merits or the underlying facts of the claim.

      When she filed the federal taxes for the
Horstmeier estate, Scott included only 50 percent
of the value of the Glenview home in the gross
estate and deducted only 50 percent of the
remaining note balance. She did so on the theory
that she personally owned 50 percent of the home,
while the Horstmeier estate owned the other 50
percent. The IRS determined otherwise and
concluded that Horstmeier alone owned the home.
As a result, the IRS found that 100 percent of
the value of the home should have been included
and 100 percent of the mortgage note balance
should have been deducted on the Horstmeier
estate tax return. The result was a $157,404 tax
deficiency.

      As executor of the Horstmeier estate, Scott
challenged the IRS ruling in tax court. The court
agreed with the IRS. It ruled that Scott failed
to present sufficient evidence that a resulting
trust had been created. Specifically, the court
concluded that there was not enough evidence to
show that an agreement existed between Scott and
Horstmeier for the joint purchase of the Glenview
home. The judge cited a number of issues as
problematic: (1) the lack of clarity concerning
how Scott’s share of the down payment was to be
repaid; (2) the securing of a second mortgage on
the property by Horstmeier, over Scott’s
disapproval; and (3) the couple’s willingness to
take joint title to the Wisconsin property when
both contributed to the initial down payment. The
judge concluded that "[t]he infirmities in
petitioner’s theory . . . are cumulative and,
considered together, cast doubt on the factual
support for a resulting trust in this case."
II

      We review the tax court’s judgment using the
same standards that apply when examining a
district court’s decisions in a civil bench
trial. See 26 U.S.C. sec. 7482(a)(1). Therefore,
we review the tax court’s findings of fact for
clear error. See Kikalos v. Commissioner, 190
F.3d 791, 793 (7th Cir. 1999). Scott’s principal
argument is that the tax court erred in
concluding that she failed to prove she had a 50
percent interest in the Glenview home, obtained
through a resulting trust. To decide whether a
resulting trust arose, we apply the law of the
State of Illinois. See Estate of Young v.
Commissioner, 110 T.C. 297, 300 (1998) (citing
Fernandez v. Wiener, 326 U.S. 340, 355-57 (1945))
("[W]hat constitutes an interest in property held
by a person within a State is a matter of State
law.").
      Under Illinois law, a court may impose a trust
when none exists to effectuate the parties’
intent. See In re Estate of Wilson, 410 N.E.2d
23, 26 (Ill. 1980). Accordingly, a resulting
trust is established when one person furnishes
consideration for property and title is taken in
the name of someone else with the intent that the
person furnishing consideration retains
beneficial ownership of the property. The pivotal
question in determining whether a resulting trust
has been created is "whether the nominal
purchaser intended the actual payor to have an
ownership interest in the good." See American
Nat’l Bank & Trust Co. of Rockford, Ill. v.
United States, 832 F.2d 1032, 1035 (7th Cir.
1987) (citing Wilson, 410 N.E.2d at 26-27; In re
Estate of McGee, 383 N.E.2d 1012, 1015 (Ill. App.
Ct. 1978)). Because Scott is rebutting recorded
legal title, she "must demonstrate the requisite
intent to create a [resulting] trust through
’clear and convincing evidence’ that is
’unequivocal both as to its existence and to its
terms and conditions.’" Eggert v. Weisz, 839 F.2d
1261, 1264 (7th Cir. 1988) (citing Wolters v.
Johnson, 449 N.E.2d 216, 218 (Ill. App. Ct.
1983); In re Estate of Wilkening, 441 N.E.2d 158,
163-64 (Ill. App. Ct. 1982)); American Nat’l
Bank, 832 F.2d at 1035 (citing Wilson, 410 N.E.2d
at 27). Furthermore, she must present facts that
suggest a resulting trust is the only reasonable
remedy. "If the evidence is doubtful or capable
of reasonable explanation upon any theory other
than the existence of a trust, it is
insufficient." Kohlhaas v. Smith, 97 N.E.2d 774,
776 (Ill. 1951).

      Once we review the facts in light of this high
burden of proof and the required deferential
standard of review, it becomes clear that Scott
loses. Scott claims that at the time Horstmeier
paid for the Glenview home, they agreed that
Scott would repay her half of the down payment in
installments and would contribute her share of
the monthly mortgage payments and property taxes
by providing all services required for upkeep of
the home. In our view, Scott failed to establish
that (1) Horstmeier actually expected
consideration in return for Scott’s share of the
Glenview home; (2) she actually paid the
consideration Horstmeier allegedly expected; and
(3) she and Horstmeier actually intended to
create a resulting trust.

      With regard to Horstmeier’s expectations,
testimony indicated that even though Scott wanted
to "pay her fair share," Horstmeier did not
really expect Scott to pay her for the down
payment or for living expenses. A resulting trust
arises, "if at all, at the instant legal title is
taken and vests." Hanley v. Hanley, 152 N.E.2d
879, 882 (Ill. 1958). Therefore, the question is
whether a trust was created at the time
Horstmeier purchased the Glenview home. When
Horstmeier purchased the home, Scott had very few
resources to actually pay consideration. She paid
no household expenses until 1979, and even then,
she never specified what those payments were for
beyond reimbursement for "bills." These facts
refute Scott’s claim that they made any
arrangement for Horstmeier advancing Scott her
portion of the purchase price in exchange for
deferred consideration furnished by Scott.

      While "[a]cts of the alleged trustee or
equitable owner subsequent to the taking of title
have no bearing upon the question of whether a
resulting trust was raised," these subsequent
acts may be considered as evidence of intent. Id.
"Intention is the key to the doctrine of
resulting trusts." Wilson, 410 N.E.2d at 27. The
tax court highlighted several aspects of Scott’s
story that work against evincing Horstmeier’s
intent to convey Scott a 50 percent interest in
the Glenview home. We find the reasoning of the
tax court compelling. If Horstmeier really
expected repayment of Scott’s share of the down
payment and mortgage, Horstmeier probably would
have been more vigilant about ensuring that Scott
actually made the payments. Instead, Scott’s own
testimony suggests that Horstmeier did not really
care if Scott paid her share or not.
Consequently, sufficient doubt was created
whether Horstmeier had agreed to lend Scott one-
half of the down payment, with an expectation
that she repay it.

      Additionally, if Scott was really expected to
reimburse Horstmeier for her share of the down
payment, she probably would not have spent her
meager earnings on luxuries like a Porsche, a
motorcycle, or the Wisconsin home. While Scott
offers reasonable explanations for permitting
Horstmeier to take out the second mortgage and
for holding joint title in the Wisconsin home, we
also find the tax court’s interpretation of these
events reasonable. The court surmised that while
the couple agreed to own the Wisconsin home
jointly, they never came to a similar agreement
to jointly own the Glenview home.

      Because Scott cannot set forth facts precluding
all reasonable explanations except a resulting
trust, her claim must fail. While Scott provided
valuable services to Horstmeier and the two
shared the Glenview home, these facts do not
necessarily mean that Scott was a co-owner. It is
equally plausible that Scott performed those
services as reimbursement for the rent and living
expenses Horstmeier paid on Scott’s behalf. This
reasonable, alternative explanation is in itself
sufficient to defeat Scott’s claim.

      The vehicle Scott chose to establish that she
had an interest in the Glenview home, a resulting
trust, is one that requires clear, convincing,
and unmistakable proof. The tax court judge
reviewed the evidence and concluded that Scott
could not meet that standard of proof. His
ultimate determination was a reasonable one./1

III

      We find that the tax court’s determinations are
not clearly erroneous. Accordingly, for the
reasons stated herein, we Affirm the tax court’s
conclusion that the Horstmeier estate includes
the entire value of the Glenview property.



/1 Although the probate court, in 1993, approved
Scott’s claim for a 50 percent tenancy-in-common
interest in the Glenview property, the tax court
was not bound by that decision. See Estate of
Rowan v. Commissioner, 54 T.C. 633, 637 (1970)
(citing Commissioner v. Estate of Bosch, 387 U.S.
456 (1967)) (ruling that the tax court "is not
conclusively bound by a State trial court
adjudication of property rights or
characterization of property rights when the
United States is not a party to the
proceedings").
