                        T.C. Memo. 2007-182



                      UNITED STATES TAX COURT



        ESTATE OF KIMBERLY A. HICKS, Deceased, KEY TRUST
       COMPANY OF OHIO, N.A., Administrator, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13779-02.                Filed July 10, 2007.



     Timothy G. Crowley, for petitioner.

     Robert D. Kaiser, for respondent.



                        MEMORANDUM OPINION


     HOLMES, Judge:   Kimberly Hicks, while still a toddler, was

severely disabled in a collision at a railroad crossing.

Litigation followed, and the largest part of the ultimate

settlement was a lump sum to be allocated between Kimberly and

her father.   The Ohio court that allocated that lump sum gave
                               - 2 -

over $1.4 million to her father, but with the full expectation

that he would immediately lend $1 million to a special trust for

Kimberly’s benefit.   Kimberly died before she needed the money,

and the major question presented in this case is whether the $1

million is deductible from the taxable value of her estate as a

debt incurred on a bona fide loan.

                            Background

     Kimberly Hicks was born on July 1, 1987.   She lived with her

parents, Clyde and Theresa, who were both guards at an Ohio

women’s prison.   In April 1990, her mother was driving the family

minivan when it collided with a Conrail locomotive engine, and

then with a car driven by a man named Swank.    The accident left

Kimberly a quadriplegic, dependent on a ventilator to breathe,

and in need of constant medical attention for the rest of her

life.   Theresa Hicks and her other daughter both suffered only

minor injuries.

     The Hickses hired a lawyer, and the Probate Court for Union

County (the county in central Ohio where the Hickses lived at the

time of the accident and when the petition was filed) appointed

Society National Bank as guardian for the estates of both
                                 - 3 -

Kimberly and her sister.1    As guardian of the estates, Society

National sued Conrail and threatened to sue Swank.

     Swank settled first, in September 1991, for $100,000.     The

Probate Court approved the allocation of this recovery among

unpaid attorneys’ fees and expenses, compensation to Kimberly’s

parents for loss of consortium,2 and compensation to Kimberly for

her injuries.

     Next to settle, in April 1993, was the Hickses’ own car

insurance carrier with whom they had filed a claim.    This claim

was also settled for $100,000.    The probate court again approved

the settlement, but this time authorized Society National to use

the full amount for litigation expenses against Conrail.

     This left Conrail, which faced the largest liability,

fighting hard to avoid it.    The Hickses and Society National’s

suit against Conrail sought damages for medical expenses, pain

and suffering, and Clyde’s loss of consortium from Kimberly.


     1
       Ohio family law distinguishes guardians with “custody and
maintenance” from guardians of an “estate”. A guardian with
custody and maintenance has such duties as protecting his ward,
providing her an adequate education if she is a minor, and
supervising her medical care. Ohio Rev. Code Ann. sec. 2111.13
(LexisNexis Supp. 2007). The guardian of an estate has the legal
duty to manage the estate for the ward’s best interest subject to
court supervision. Ohio Rev. Code Ann. sec. 2111.14 (Anderson
2002).
     2
       Ohio courts recognize parents’ right to recover damages
for physical injury to their minor child, terming such claims
“loss of filial consortium.” “Consortium” includes “services,
society, companionship, comfort, love and solace.” Gallimore v.
Children’s Hosp. Med. Ctr., 617 N.E.2d 1052, 1054 (Ohio 1993).
                                - 4 -

Conrail counterclaimed against Theresa, and she then

counterclaimed against Conrail.    Spurring the litigation from

Clyde and Theresa’s perspective were several problems that they

faced.    First, they needed enough money to meet their moral (and

statutory) duty to provide for the ordinary expenses of their

minor children.3    Clyde had been specially recognized by the

Probate Court as Kimberly’s guardian for “custody and

maintenance,” and so had a specific duty in that capacity to

provide suitable maintenance for her care.4     According to the

entirely credible testimony of Theresa Hicks, Kimberly’s physical

injuries had not damaged her mind, and as she grew to school age

she was able, within the limits of her paralysis, to be as lively

a little girl as her friends.    The estimates of her expected

lifespan after the accident varied widely, but one prepared by an

insurance company at the request of the Hickses’ lawyer suggested

it was quite likely that she would live into adulthood.      This

meant that Clyde’s guardianship (and its related duties) would

also likely last until she reached the age of majority.

     This raised a second problem.      Kimberly obviously faced

heavy medical expenses.    At the time of the accident, the Hickses


     3
       Section 3103.03(A) of the Ohio Code states: “The
biological or adoptive parent of a minor child must support the
parent’s minor children out of the parent’s property or by the
parent’s labor.” Ohio Rev. Code Ann. sec. 3103.03(A) (Anderson
2003).
     4
         Ohio Rev. Code Ann. sec. 2111.13(A) (2007).
                               - 5 -

had very good health insurance through their local Blue

Cross/Blue Shield.   It was paying for almost all of Kimberly’s

extraordinary medical expenses, and it had no lifetime cap, but

the policy would continue only as long as either Clyde or Theresa

remained employed by the State.   They recognized that they might

lose their coverage--by having to leave their jobs at the prison,

by the State’s choosing to switch insurers, or by the insurer’s

changing the terms of the policy.   More haunting was the

possibility that one or both of them might not survive their

daughter--Clyde in particular was of an age and had physical

problems of his own that made that fear reasonable.   So the

Hickses were rightly worried about all the future costs of caring

for a very disabled child.

     These worries made it very important that Kimberly be in a

position to qualify for Medicaid when she became an adult or if

the Hickses lost their insurance.   Qualifying for Medicaid would

mean that Kimberly would get the care she needed, but Medicaid is

a program designed for the poor and its eligibility rules would

force her to spend down any damages she won.   And, though

Medicaid provides adequate care, the Hickses reasonably thought

it would be less than perfect in meeting Kimberly’s special

needs.

     The Hickses’ ability to solve these problems and allay their

worries was very uncertain.   Conrail disputed its liability,
                                - 6 -

blaming Theresa for the accident, and the Hickses’ medical

insurer intervened to protect its subrogation rights.    Conrail

even won summary judgment before trial, though the Hickses got

that reversed on appeal.    This pretrial maneuvering looked like

it was headed to another round of appellate review, as both the

Hickses and Conrail had petitioned the Ohio Supreme Court to take

the case.   But then, in early 1994, Conrail offered to settle all

claims for $4,650,000.    It had already negotiated separate

settlement of Blue Cross/Blue Shield’s subrogation claim, which

relieved the Hickses from having to split the proposed settlement

with their insurer.   But Conrail’s offer was a lump sum in

exchange for a release--there is nothing in the record that shows

Conrail cared at all about how that lump sum would be split among

the Hickses or their various causes of action.

     This is where the Hickses’ lawyers showed considerable

professionalism--instead of just taking a lump sum or negotiating

an ordinary structured settlement, they brought in a team of

specialists, one of whom was Thomas Baxter.    Baxter is an

attorney with a practice at the intersection of health care,

trust, and probate law.    He focuses on the analysis and creation

of trusts for the benefit of severely disabled adult children

whose parents need help in navigating the complex and frequently
                               - 7 -

changing rules governing eligibility for Medicaid.    Baxter

suggested to the Hickses that they create two trusts for

Kimberly.

     The first was the Kimberly Hicks Special Needs Trust.

Baxter designed the Special Needs Trust to comply with section

1396p(d)(4)(A) of the Medicaid Payback Trust Act, which had just

been enacted in 1993.   42 U.S.C. sec. 1396p(d)(4)(A) (2007).

Beneficiaries of trusts that comply with the Act’s provisions

need not exhaust trust assets to qualify for Medicaid or other

government assistance, since the assets of this kind of trust

don’t count in determining eligibility for Medicaid.       When the

beneficiary dies, however, the State gets back from the trust

whatever it paid for medical care on her behalf.     Id.    Kimberly’s

Special Needs Trust would pay expenses uncovered by government

assistance or her health insurance.    It was to be funded with $1

million from the Conrail settlement.

     The second trust was the Kimberly Hicks Settlement Fund

Management Trust, and was to be available to Kimberly for her

“support, maintenance, health and education.”   This trust was to

be funded in part by another $450,000 from the Conrail

settlement.5   This trust’s assets, however, would be counted in


     5
       The Management Trust agreement recited that the settlors
of the Trust were Clyde and Theresa, even though all the other
documents in the record showed it funded from another $450,000 of
the Conrail settlement to be allocated to Kimberly. The parties
                                                   (continued...)
                               - 8 -

determining Kimberly’s Medicaid eligibility.   This meant that if

the insurance coverage she had through her parents lapsed, she

would have to spend all or nearly all of the Management Trust’s

assets.   The Hickses’ attorneys came up with the apparently novel

(or at least untried in any reported decision that we could find)

idea of having Clyde fund a substantial part of this trust with a

loan of $1 million to be allocated to him from the settlement.

The loan would be evidenced by a promissory note from the

Management Trust to him and would pay interest at 6% per annum,

slightly less than Society National expected to earn from

investing the Management Trust’s corpus.   The note was not

amortizing, and was callable on demand in only two circumstances

--Kimberly’s death or her failure “to have available at

reasonable premium charges a commercial medical indemnity

contract” once she turned eighteen.

     The Hickses and their lawyers did not have the final say

about this.   Local probate courts have jurisdiction under Ohio

law to review and approve the settlement, allocation, and

distribution of noneconomic compensatory damages in civil cases.


     5
      (...continued)
did not discuss how it was that Kimberly’s parents could be
regarded as ever having possession of this $450,000. If this
initial corpus came from Kimberly herself, it is conceivable that
it might have counted as her own asset for purpose of Medicaid
eligibility. See 42 U.S.C. 1396p(d). On the estate tax return,
this original corpus was listed as estate property. See infra,
p.10.
                                - 9 -

See Ohio Rev. Code Ann. sec. 2111.18 (Anderson 2002).   With their

tentative settlement in hand, the Hickses petitioned the Union

County Probate Court to approve their plan.   Baxter sent a

prehearing report to the judge to explain the proposed trusts and

loan.   He carefully noted:

           The $1 million loan which Mr. Hicks is making
           to the Settlement Trust, although available
           for Kimberly’s use and benefit during her
           lifetime, will not be an asset of her estate
           at her death. Since her estate will probably
           exceed $600,000, the savings on the $1
           million which will not be included will be
           approximately $500,000.

     The Probate Court reviewed the plan at a hearing in June

1994 and approved both the amount of the settlement and

attorneys’ fees, and the creation of the trusts.   Society

National drew up a plan to distribute the funds, which the Court

approved about a month later.   The plan allocated $1,415,000 to

Clyde Hicks for loss of services and loss of consortium;

$1,450,000 to Kimberly; and $100,000 to Theresa and Kimberly’s

sister for their comparatively minor injuries.   (The remainder

went to attorneys’ fees and expenses.)   Society National, in its

capacity as trustee of the Management Trust, issued a promissory

note to Clyde for $1 million.   This had been contemplated by the

terms of the Management Trust, under which proceeds from such a

loan “shall become part of the trust property and shall be

administered and distributed on the same terms as the property

originally contributed to the trust.”    With the trusts in place,
                                  - 10 -

the Probate Court was able to terminate Society National’s role

as guardian of Kimberly’s estate--a financial benefit to the

estate because, under Ohio law, the fees and expenses of a

guardianship are noticeably greater than those of a trust.

       For several years, the trusts and loan worked as planned.

Clyde received interest on schedule, and duly reported it on his

income tax return each year.       But then, in December 1998,

Kimberly died.       She was only eleven years old, and her estate

needed no probate because her only assets were the property held

in the two trusts.       Society National’s successor--the Key Trust

Company (which has its principal place of business in Ohio)--

became the administrator of her estate, and filed an estate tax

return in September 1999.       The estate listed the total amounts in

both trusts--including the assets bought with the contested $1

million--under the Code provisions that regard certain trust

assets to be part of a decedent’s estate.       See secs. 2036, 2037,

and 2038.6      It then claimed as a deductible debt under section

2053(a)(3) and (4) the $1 million owed to Clyde under the

promissory note.       The estate also took other deductions, but

mutual concessions reduced the issues that we must decide to only

two:       (1) Is the estate entitled to deduct $1 million as a



       6
       Unless otherwise indicated, all section references are to
the Internal Revenue Code, and the Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 11 -

repayment of a loan; and (2) is it entitled to deduct more than

$170,000 in administrative and legal expenses?

                              Discussion

I.   Loan Treatment

     The main issue in this case is how to treat the $1 million

promissory note issued to Clyde by the Management Trust.    The

estate urges us to accept the transaction as what the Hickses and

their lawyers designed it to be--a loan by Clyde of $1 million

from his share of the Conrail settlement.    The Commissioner

argues that this “loan” was hardly bona fide and, even it were,

urges us to apply the substance-over-form doctrine and disregard

it as a sham.

     We begin with the Code.    Section 2053(c)(1)(A) allows a

deduction from the value of an estate for any indebtedness, but

only “to the extent that [it was] contracted bona fide and for an

adequate and full consideration in money or money’s worth * * *.”

(Emphasis added.)     The regulation directs us to apply State law

in deciding whether a debt is “payable out of property subject to

claims and * * * allowable by the law of the jurisdiction * * *.”

Sec. 20.2053-1(a)(1), Estate Tax Regs; see also Estate of Lazar

v. Commissioner, 58 T.C. 543, 552 (1972).     The Commissioner’s

first attack on the bona fides of the loan is an argument that

Clyde never had control over the $1 million to begin with.      He

claims that the settlement really provided Clyde with only
                              - 12 -

$415,000 in damages, and that the probate judge’s allocation of

damages effectively transferred the $1 million straight from the

guardian’s interim financial holding account to the Management

Trust without Clyde’s ever having control.

     We think the Commissioner is underestimating the importance

of the Probate Court in deciding to whom the $1 million belonged.

The Hickses’ lawyers were very careful in leaving the unallocated

settlement funds with Society National until the beneficiaries

were determined.   This acknowledged the Probate Court’s broad

discretionary authority as “superior guardian” of a minor under

Ohio law.   That status means that the Probate Court has the power

and authority to control the actions of the minor’s guardian and

act directly to ensure that the minor’s best interests are being

considered.   Ohio Rev. Code Ann. sec. 2111.50 (Anderson 2002).

It also means that the Probate Court has to approve any

settlement which the minor’s guardian reaches before it can take

effect.   See Ohio Rev. Code Ann. sec. 2111.18 (2007).   Because of

this essential role the Probate Court plays under Ohio law, we

hold that the $1 million in question didn’t belong to anyone

until the Probate Court said it did.

     The Commissioner’s attack doesn’t end with that quibble

about possession of the settlement proceeds under Ohio law.    He

also argues that the allocation was a sham.   This is itself a

problem because the statute and regulation don’t tell us to
                                - 13 -

review the allocation.    They tell us to review the bona fides of

the loan.   Decades ago, we held that the “bona fides of a loan

are primarily established by the intention of the parties that

repayment will be made pursuant to the terms of the agreement.”

Estate of Ribblesdale v. Commissioner, T.C. Memo. 1964-177.      The

Commissioner isn’t really contesting the existence of that

intention--it is uncontroverted that Kimberly’s trust was paying

interest to Clyde.   We also specifically find that all the

parties to the trust arrangement intended that the loan would be

repaid if either of the stated conditions--Kimberly’s death or

need to get on Medicaid--were met.       In Estate of Labombarde v.

Commissioner, 58 T.C. 745, 753 (1972), affd. 502 F.2d 1158 (1st

Cir. 1973), we held that the children’s support payments to their

mother were not a loan because there was no note evidencing the

supposed debt and no interest was ever paid.       Here, the facts are

in complete contrast:    The note was executed and admitted into

the record, and Clyde was paid interest every month on the

principal amount of the loan.

     The Commissioner does make a good point by noting that the

Probate Court specifically mentioned at the settlement hearing

only $415,000 as compensation to Clyde.      He concludes from this

that the extra $1 million allocated to Clyde in the papers

approved by the Probate Court transformed the allocation into

nothing more than an “uncontested, nonadversarial, and entirely
                               - 14 -

tax-motivated” proceeding of the sort we condemned in Robinson v.

Commissioner, 102 T.C. 116, 129 (1994), affd. in part and revd.

in part 70 F.3d 34 (5th Cir. 1995).     In the Commissioner’s view,

the Probate Court’s review is colored by the undisputed fact the

Hickses themselves proposed the allocations, and Kimberly and her

father did not have adverse interests in how the settlement

proceeds were distributed.    The Commissioner reasonably suspects

that this might mean the form of the allocations has little

relation to economic reality, and that the disputed $1 million

was Kimberly’s at all times.

     We disagree at the outset with the Commissioner’s unlinking

of the $1 million repayment feature of the loan from its

associated income stream.    That income stream was Clyde’s from

the start, and it is plain error as a matter of economics to say

in effect that it was valueless.    Because the note was callable

at Kimberly’s death, we can estimate its present value as of the

Probate Court’s allocation by using her life expectancy at that

time.   That was the subject of considerable dispute, and the

Commissioner argues that it ranged between 4 and 50 years.    The

annual payment to Clyde was fixed at $60,000.    If one uses a

discount rate of 10% to this income stream (at the time, long-
                               - 15 -

term prime interest rates were between 7% and 8%),7 and applies

it to the range of Kimberly’s life expectancy, Clyde’s income

interest in the note was likely worth between $190,000 and

$590,000 on the day it was created; if one discounts at 8%, that

worth jumps to a range of $200,000 to $730,000.   These values

only increase if one adds in the prospect of payment of the

principal, or computes some nonzero probability of that payment

being accelerated by Kimberly’s need to qualify for Medicaid.

(They also admittedly decrease with the probability that Kimberly

would use the money before then.)   This means that the allocation

approved by the Probate Court is not simply an allocation of $1

million to Kimberly.   As the Hickses suggest, there was a real

risk that Clyde would predecease Kimberly.   If he did, the

present value of the note would become part of his taxable

estate, and these rough calculations strongly hint that that

value would not be negligible.

     This strongly suggests that there was real economic

substance here even if we look at the entirety of the allocation,

including the loan.    We do agree with the Commissioner that it’s

reasonable to assume that Kimberly’s injuries would shorten her

life, but we find as a fact she was in no danger of imminent

death at the time of the settlement, and so do not see the loan


     7
       Federal Reserve Statistical Release H.15, Selected
Interest Rates, Historical Data, http://www.federalreserve.gov/
releases/h15/data.htm.
                              - 16 -

as an attempt to dodge the imminent imposition of the estate tax.

Cf. Robinson, 102 T.C. at 129 (even State-court-approved

allocations are disregarded if done “solely with a view to

Federal income taxes”).

     We also find that Clyde had plenty of motivation to seek a

large portion of the settlement for himself.   Remember that under

Ohio law parents have a statutory obligation to provide

continuing support to their minor children.    Ohio Rev. Code Ann.

sec. 3103.03(A) (Anderson 2003).   And medical care for Kimberly

was expected to cost around $30,000 a month.   Given Clyde’s

obligation to support Kimberly until she was an adult, and in the

face of Kimberly’s enormously expensive round-the-clock care, it

seems quite reasonable for Clyde to have sought a large payout

and then to have provided part of it as a loan to a trust to

ensure money would be available.   The allocation-plus-loan of $1

million can be seen as fulfillment of the parental duty that he

owed his daughter.   Should the Hicks lose their health insurance,

or if Kimberly turned out not to qualify for Medicaid coverage,

the trusts and the Hickses would shoulder the financial burden.

But the Hickses’ lawyers foresaw a sea of troubles if that

happened.   If there was too much money in the Management Trust,

Medicaid might swallow it all before Kimberly would become

eligible; but if too much money went to Clyde, it might end up

with unforeseen future creditors of his own if he met with bad
                              - 17 -

luck.   The loan was a way to tack between these two dangers.    It

ensured that the money would be there during Kimberly’s minority,

but with a towline attached so that if Kimberly were ever forced

to rely on Medicaid, the money could be taken out of the

Management Trust and she could qualify after spending down only

$450,000 rather than nearly $1.5 million.    Her parents would then

have the resources from which they could continue to meet her

needs that were unmet by Medicaid.

     In deciding whether the allocation as a whole lacked

substance, we return again to the important role of the Probate

Court under Ohio law.   Probate courts’ decisions in this area are

discretionary--as the Hickses’ personal injury lawyer credibly

testified:   “Some judges don’t like special-needs trusts, because

some judges think that that money should go to the state, and

that’s just a strong philosophical belief.   Some judges don’t

mind the loss-of-society claims; some judges do.”   And unless

there is an abuse of discretion, an Ohio appellate court “will

not substitute its judgment for that of the trial court.”    In re

Estate of Steigerwald, 2004-Ohio-3834, at par. 17 (Ohio Ct. App.

2004) (discussing allocation of wrongful death suit).   Ohio is,

moreover, wonderfully blunt about why it gives Probate Courts

this degree of deference: to “protect minors against others whose

interests may be adverse to theirs, especially their parents.”

In re Guardianship of Matyaszek, 824 N.E.2d 132, 143 n.7 (Ohio
                               - 18 -

Ct. App. 2004) (emphasis added).   This makes us especially

disinclined to second-guess, in the guise of economic-substance

review, their specialized expertise in the appropriate allocation

under Ohio family law of the lump-sum settlement of a state tort

claim.

     In upholding the allocation of the settlement made by the

State court in this case as having economic substance, we are not

invoking a bright-line rule that our Court must always defer to

settlement allocations reviewed by State courts--we plainly don’t

in circumstances like those we faced in Robinson, where a state-

court judge late one night accepted a settlement that grossly

rewrote a jury’s allocation in a way plainly aimed at reducing

the taxability of the award.   In a case like that, there is no

incentive by the state-court judge to closely review the

settlement--as we pointed out there, since Texas has no income

tax of its own, there was no state interest that would be

affected by a different allocation.

     The Hickses’ case--though superficially similar in that the

settling tortfeasor had no interest in the allocation of the

settlement--is different in important ways.   The first, of

course, is that states themselves have an interest (represented

by state-court judges) in considering the impact of allocations

in personal injury cases on the state’s own Medicaid system.    The

field of long-term health-care planning, both for the disabled
                               - 19 -

and the elderly, is rapidly growing and changing with a frequency

that seems to rival tax law’s.   The policy decisions already made

by Congress and the states in that area--acknowledging the use of

trusts and asset transfers in preparing to qualify for Medicaid

benefits, but limiting them and, in cases like this, subjecting

them to state-court review--strongly counsel us to not second-

guess those courts in the guise of reallocating settlements years

later in estate-tax cases.

     A second factor making us reluctant to upset the allocation

here is that the initial allocation of the settlement was not

between taxable and nontaxable amounts.   Unlike Robinson, the

allocation here was entirely among various causes of action all

of which produced nontaxable transfers to the Hickses.   That

reduces the probability that tax avoidance was driving the

allocation--to be sure, there would be foreseeable tax

consequences, but those consequences depended on questions that

couldn’t be answered with much certainty:   Would Clyde and

Theresa die before Kimberly?   How much money would the trusts

have to spend on her?   Would the Blue Cross/Blue Shield insurance

lapse sooner or later or not at all?

     And we finally return to Ohio’s law expressly giving probate

courts the authority to review intrafamily allocations of tort

settlements when minors are involved.   This reflects the all-too-

human likelihood that not all families will respond to the type
                                - 20 -

of tragedy that the Hickses endured the way the Hickses endured

it, by drawing together to do the best for all the members of the

family.     Some families will be rent asunder in dividing large

amounts of money, and some parents will inevitably be tempted to

cheat their own children.     But Ohio foresaw that threat and

created courts to forestall it.     Due regard for them again

counsels us against upsetting the allocation of the settlement

here.

     Our hesitation echoes the Supreme Court’s, which recently

noted the potential importance of State-court approval in similar

circumstances.     Ark. Dept. of Health & Human Servs. v. Ahlborn,

547 U.S. 268, 126 S. Ct. 1752, 1765 (2006).     Ahlborn involved a

statutory lien that Arkansas imposed on settlement proceeds

received by accident victims.     The lien’s purpose was to

reimburse the State for its Medicaid expenses in caring for the

victim, but the lien was limited to “medical expenses” that were

recovered.     Arkansas wanted to extend the lien to the entire

amount of any settlement proceeds, suspecting that the parties’

allocation of the settlement among various categories of damage

was done with an eye to minimizing the reach of the lien.

        To be sure, Ahlborn is not directly on point either, because

the Supreme Court did not actually rule on the argument that

court approval should shield an allocation from subsequent

second-guessing.     But it did hint strongly in that direction:
                              - 21 -

           [T]he risk that parties to a tort suit will
           allocate away the State’s interest can be
           avoided either by obtaining the State’s
           advance agreement to an allocation or, if
           necessary, by submitting the matter to a
           court for decision.

Id. at ___, 126 S. Ct. at 1765 & n.17 (emphasis added).

     We view with some skepticism the Commissioner’s fear that

upholding the deductibility of the loan repayment here will

trigger a massive recharacterization of settlement proceeds as

intrafamily loans in the future.   But we take cases one at a

time, and here the facts persuade us that Clyde’s loan had real

substance--it was concededly valid under Ohio law, and resulted

in the creation of real interest income on which he really did

pay tax.   We are particularly persuaded by the evidence that the

Hickses were trying very hard to comply with the complex

Medicaid-eligibility rules in settling the trusts.   As the

Supreme Court said in a leading opinion on substance-over-form,

           where, as here, there is a genuine multiple-
           party transaction with economic substance
           which is compelled or encouraged by business
           or regulatory realities, is imbued with tax-
           independent considerations, and is not shaped
           solely by tax-avoidance features that have
           meaningless labels attached, the Government
           should honor the allocation of rights and
           duties effectuated by the parties * * *.

Frank Lyon Co. v. United States, 435 U.S. 561, 583-84 (1978).

     We therefore honor the allocation disputed here, and find

that the $1 million loan was bona fide and for adequate and full
                                - 22 -

consideration under section 2053(c)(1)(A).    It is not a sham, and

we hold that it is deductible from Kimberly’s gross estate.8

II.   Administrative expenses

      The Commissioner has conceded in his posttrial brief the

deductibility of administrative expenses incurred by the trusts

in 2000, but contests all later expenses.    The problem for the

estate is that it neither secured the admission of a summary

exhibit--Exhibit 120-P--nor elicited testimony from the Key Bank

employee who testified about the estate’s fees and expenses after

Kimberly died.   That leaves those expenses unsubstantiated for

the years 2001-2004, and so we must disallow them.    The estate is

quite right, however, about the expenses of this litigation;

those expenses are governed by Rule 156:

              If the parties in an estate tax case are
           unable to agree under Rule 155 * * * upon a
           deduction involving expenses incurred at or
           after the trial, then any party may move to
           reopen the case for further trial on that
           issue. [Emphasis added.]

      The parties are encouraged to reach a settlement on this

issue, but in any event


                                     Decision will be entered under
                                Rule 155.


      8
       Any predeath interest accrued under the terms of the
promissory note follows the loan (i.e., is payable to Clyde as
the holder of the note) and thus is also deductible by the
estate. See sec. 20.2053-4, Estate Tax Regs.
