                        T.C. Memo. 1999-406



                      UNITED STATES TAX COURT



    ESTATE OF LUCILLE R. DEVLIN, DECEASED, C. RONALD LAMBERT,
                      EXECUTOR, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8595-98.                 Filed December 14, 1999.



     Clark J. Grant, for petitioner.

     Deanna R. Kibler and Albert B. Kerkhove, for respondent.



                        MEMORANDUM OPINION


     WELLS, Judge:   Respondent determined a deficiency in

petitioner’s Federal estate tax in the amount of $25,735.95.

After concessions,1 the sole issue for decision is whether


1
     Petitioner has agreed to all of the adjustments determined
by respondent in the notice of deficiency except the adjustment
relation to the issue herein decided.
                                - 2 -

decedent’s gross estate includes gifts that were authorized by a

State court order issued before decedent’s death but were made

after decedent's death.

     The instant case was submitted fully stipulated pursuant to

Rule 122.2   The facts stipulated by the parties are incorporated

herein by reference and are found as facts in the instant case.

     C. Ronald Lambert is the executor of the Estate of Lucille

R. Devlin and the son of Lucille Devlin (decedent).    At the time

the petition was filed, C. Ronald Lambert resided in Columbus,

Nebraska.    When she died, decedent was a resident of Columbus,

Nebraska.

     Decedent had another son, Randall T. Lambert, who married

Patricia Lambert and had three children:   Cynthia Lambert, Sandra

Lambert, and Randall T. Lambert, Jr.    C. Ronald Lambert married

Charlotte K. Lambert and had three children:    Mark Lambert,

Kimberly Lambert, and Tiffanie Lambert.

     On January 8, 1986, the county court of Platte County,

Nebraska (county court), appointed Randall T. Lambert and C.

Ronald Lambert, as guardians-conservators for decedent pursuant

to Neb. Rev. Stat. sec. 30-2630(2) (Reissue 1995). Randall T.

Lambert died on April 19, 1986.    On August 28, 1986, the county



2
     Unless otherwise indicated all section references are to the
Internal Revenue Code in effect at the time of decedent’s death,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                - 3 -

court appointed C. Ronald Lambert as sole guardian-conservator

for decedent.    During 1991, 1992, 1993, and 1994, C. Ronald

Lambert, as decedent’s guardian-conservator, made applications to

the county court for authority to make certain gifts to

decedent's son, daughters-in-law, and grandchildren.    The

applications were granted, and the authorized gifts were made.

     During 1995, C. Ronald Lambert, as decedent’s guardian-

conservator, applied to the county court for authority to make

certain gifts.    On April 26, 1995, the county court issued an

order (order) authorizing, but not requiring, C. Ronald Lambert

to make gifts in cash in the following amounts to decedent’s

daughter-in-law and grandchildren:

          Randal T. Lambert, Jr.          $10,000
          Sandra Lambert                   10,000
          Cynthia Lambert                  10,000
          Mark Lambert                      6,666
          Kim Lambert                       6,666
          Tiffanie Lambert                  6,666
          Patricia Lambert Gulley          10,000

The order also authorized, but did not require, C. Ronald Lambert

to make a gift of real estate having a value of $20,000 to

himself and his wife Charlotte K. Lambert as tenants in common.

Before decedent’s death, C. Ronald Lambert, pursuant to the

order, conveyed the real estate to himself and Charlotte Lambert

as tenants in common.

     On October 1, 1995, decedent died.    At the time of

decedent's death, her estate possessed insufficient liquid assets
                                - 4 -

to make the cash gifts authorized by the order.   On October 16,

1995, decedent's estate made the cash distributions authorized by

the order.   Decedent's estate's tax return claimed that the gifts

made pursuant to the order, but after decedent's death, were not

includable in decedent's gross estate.   In the notice of

deficiency issued by respondent in the instant case, respondent

determined that those gifts were includable in decedent's gross

estate for estate tax purposes.

     Section 2001 imposes a tax on the taxable estate of every

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

taxable estate is defined as the gross estate less deductions

allowed.   See sec. 2051.   Section 2033 provides that a decedent’s

gross estate includes “the value of all property to the extent of

the interest therein of decedent at the time of his death.”

     In the instant case, we must decide whether the gifts made

to decedent’s daughter-in-law and grandchildren pursuant to the

order, but after decedent's death, are includable in decedent's

gross estate.   Respondent argues that such gifts were incomplete

on the date of decedent’s death and, accordingly, should be

included in decedent’s gross estate.    Petitioner argues that on

the date that decedent's guardian-conservator conveyed the real

property to C. Ronald Lambert and Charlotte Lambert as tenants in

common, decedent's guardian-conservator breached a fiduciary duty

to the remaining beneficiaries covered by the order.   That
                                - 5 -

breach, petitioner contends, resulted in a constructive trust on

decedent's property to the extent of the gifts authorized but not

yet made.    Accordingly, petitioner argues that, when the

remaining gifts were completed, they related back to the date of

the creation of the constructive trust.    Consequently, petitioner

argues that such gifts should not be included in decedent's gross

estate.3    Petitioner bears the burden of proof.   See Rule 142.

That the instant case was submitted to the Court fully stipulated

does not relieve petitioner of that burden.    King's Court Mobile

Home Park, Inc. v. Commissioner, 98 T.C. 511, 517 (1992).

     “State law creates legal interests and rights.     The federal

revenue acts designate what interests or rights, so created,

shall be taxed.”    Morgan v. Commissioner, 309 U.S. 78, 80 (1940).

Nebraska law provides, that in order for a conveyance to be a

completed intervivos gift, there must be donative intent,

delivery, and acceptance.    See Lewis v. Poduska, 481 N.W.2d. 898,

902 (Neb. 1992).    Although Nebraska courts have sustained gifts

where delivery was incomplete, they have done so only where it is

clear that the donor took all of the necessary steps to complete

the gift and the possibility that completion of the gift might

fail was in the hands of another party.    See Rorabaugh v. Garvis,



3
     Although petitioner claimed on the estate tax return a
deduction for the gifts made pursuant to the order, petitioner
has conceded by stipulation that sec. 2053 does not support the
deduction of those gifts from the gross estate.
                                - 6 -

252 N.W.2d 161 (Neb. 1977) (gift completed before the donor’s

death even though the bank did not complete the transfer of

funds, because the donor had done all that was in her power to

effectuate the gift).

     For Federal gift tax purposes, a transfer of property is

considered complete only to the extent that “the donor has so

parted with dominion and control as to leave in him no power to

change its disposition, whether for his own benefit or for the

benefit of another”.    Sec. 25.2511-2(b), Gift Tax Regs.     To

evaluate whether a gift has been completed, we look to the

“objective facts of the transfer and the circumstances under

which it [the gift] is made”.    Sec. 25.2511-1(g)(1), Gift Tax

Regs.

     In the instant case, there is no indication that any steps

were taken toward delivery of the gifts or the cessation of

dominion and control over the property that was the subject of

the claimed gifts.   With the exception of conveying the real

estate to C. Ronald Lambert and his wife, decedent's guardian-

conservator took no steps to effect delivery of the other gifts

authorized by the order.    Indeed, immediately prior to the date

of decedent’s death, she had insufficient liquid assets to pay

the authorized cash gifts.    Petitioner has not shown that

decedent's guardian-conservator took any steps to make the cash

gifts authorized, but not required, by the order.    Accordingly,
                               - 7 -

we find that, pursuant to Nebraska law, petitioner has not shown

that the gifts made after decedent's death were complete on the

date of decedent’s death.

     As to petitioner's argument that gifts authorized by the

order were completed when decedent's guardian-conservator

conveyed the real estate to C. Ronald Lambert and Charlotte

Lambert, we disagree.   Neb. Rev. Stat. sec. 30-2646 (Reissue

1995) provides “In the exercise of his powers, a conservator is

to act as a fiduciary and shall observe the standards of care

applicable to trustees as described by section 30-2813".4

Acknowledging that the Nebraska Supreme Court has not addressed

the specific situation presented in the instant case, petitioner

relies on White v. United States, 881 F. Supp. 688 (D. Mass.

1995).   In that case, a grantor created a trust which provided

for distributions to the beneficiaries immediately after the

first day of each successive year.     See id. at 690.   The trustees

failed to make the required distributions for a number of years

prior to the grantor’s death (missed distributions).     See id.



4
     Neb. Rev. Stat. sec. 30-2813 (Reissue 1995) in turn
provides:

     Except as otherwise provided by the terms of the trust,
     the trustee shall observe the standards in dealing with
     the trust assets that would be observed by a prudent
     man dealing with the property of another, and if the
     trustee has special skills, or is named trustee on the
     basis of representations of special skills or
     expertise, he is under a duty to use those skills.
                                - 8 -

After the grantor’s death the trustees made the missed

distributions.   See id.   The U.S. District Court for the District

of Massachusetts held that the missed distributions were

completed gifts.   See id. at 693.   The District Court explained:

     The language of the trust required the trustees to make
     the distributions on the first of the year as to each
     year’s distribution. Once this date passed, [the
     grantor] had transferred her control over the amount of
     the distribution. Otherwise stated, [the grantor’s]
     power lapsed on the first of the year with respect to
     the distributions at issue. [The grantor] could not
     have canceled or amended the amount of a missed
     distribution which, under the mandatory language of the
     trust, became binding once the date for distribution
     passed. * * * [Id.]

The facts of the instant case are distinguishable from the facts

of White.   The language of the order does not require the gifts

to be made.   Nebraska law provided that, after a determination of

incompetency, the court, either directly or through a

conservator, can exercise all powers over the estate and affairs

of the incompetent, including the power to make gifts.   See Neb.

Rev. Stat. sec. 30-2637(3) (Reissue 1995).   That statute,

however, requires that a conservator obtain court approval before

making any gifts out of the incompetent’s estate.   See Neb. Rev.

Stat. sec. 30-2654(b) (Reissue 1995).

     Accordingly, after the issuance of the order, it was within

the power of decedent's guardian-conservator to make the

enumerated gifts, but he was not required to do so.   Decedent,

pursuant to Nebraska law, could have challenged that order prior
                                 - 9 -

to her death.     See Neb. Rev. Stat. sec. 30-2637(5).    Moreover,

petitioner has not shown that decedent's guardian-conservator

could not have petitioned the county court for permission to

amend or set aside its order.     Additionally, petitioner has not

shown that pursuant to Nebraska law, the order vested in the

donees any enforceable right to the gifts.

     In contrast to White v. United States, supra, we think that

the reasoning embodied in City Bank Farmers Trust Co. v. Hoey, 23

F. Supp. 831 (S.D.N.Y. 1938), affd. 101 F.2d 9 (2d Cir. 1939),

more aptly applies to the facts of the instant case.       In City

Bank Farmers Trust Co., the court issued an order authorizing

certain gifts to be made out of the estate of an incompetent.

See id. at 832.    After the order had been issued but before the

gifts were made, Congress enacted gift tax provisions of the

Revenue Act of 1932, ch. 209, 47 Stat. 169.     See id.    The U.S.

District Court for the Southern District of New York held that

the gifts were not complete until their delivery.     See id. at

833-834.   Because the gifts were delivered after the enactment of

the gift tax, a gift tax was due on the gifts.     See id.    The

District Court explained:

     Where the gift is one made out of an incompetent’s
     estate by court decree, the gift is not complete until
     delivery of the thing or money to the donee. The
     decree by itself does not pass title or give the donee
     anything. As to any money directed to be paid the
     court may revoke the order at any time prior to actual
     payment. What happens in such a case is that the
     court, acting for the incompetent donor, gives a
                               - 10 -

     direction to the committee, its bailiff, to deliver
     property or pay money to the donee. It is precisely as
     if a donor in his right mind tells his agent in
     possession of his money to pay a specified sum to the
     donee. There is no gift until the money is turned
     over. [Id. at 833.]

     Finally, we disagree that, pursuant to Nebraska law, the

date that the gifts were completed should be related back to the

date that decedent's guardian-conservator conveyed the real

property to C. Ronald Lambert and Charlotte Lambert as tenants in

common.   The Nebraska Supreme Court has defined a constructive

trust as:

     “a relationship with respect to property subjecting the
     person by whom the title to the property is held to an
     equitable duty to convey it to another on the ground
     that his acquisition or retention of the property is
     wrongful and that he would be unjustly enriched if he
     were permitted to retain the property. * * * [Fleury
     v. Chrisman, 264 N.W.2d 839, 842 (Neb. 1978), quoting
     Box v. Box, 21 N.W.2d 868, 869 (Neb. 1946); emphasis
     supplied.]

     We read Fleury as providing a constructive trust in the

property conveyed, not property the transferee has not received,

i.e., in the instant case, decedent's other property that had not

been conveyed.   Moreover, we are not convinced, based on the

record in the instant case, that C. Ronald Lambert, as decedent's

guardian-conservator, wrongfully conveyed the real property to

himself and his wife.   Nonetheless, assuming arguendo that C.

Ronald Lambert was unjustly enriched by that conveyance, the

proper remedy would have been to reconvey the transferred real
                              - 11 -

property back to decedent’s estate.    See Mischke v. Mischke, 530

N.W.2d 235 (Neb. 1995) (the court required, under theory of

constructive trust, that a brother who improperly conveyed

decedent's property to himself, under power of attorney, at a

time when decedent was alive but incapacitated, must reconvey the

property to decedent's estate), affd. after remand 571 N.W.2d 248

(Neb. 1997).   Petitioner has not cited, nor have we found, any

authority for the proposition that the Nebraska Supreme Court,

faced with the facts of the instant case, would compel C. Ronald

Lambert, as guardian-conservator of decedent’s estate, to

complete the remaining gifts authorized, but not required, by the

order.   Accordingly, we hold that petitioner has not shown that

the gifts made after decedent's death should relate back to the

date prior to decedent's death that decedent's guardian-

conservator conveyed the real property to C. Ronald Lambert and

his wife.

     Based on the foregoing, we hold that the gifts authorized by

the order but made after decedent’s death must be included in

decedent’s gross estate for estate tax purposes.

     To reflect the foregoing and the concessions of the parties,

                                      Decision will be entered

                               under Rule 155.
