                  FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

ESTATE OF VIRGINIA A. BIGELOW,         
DECEASED, FRANKLIN T. BIGELOW,
JR., EXECUTOR,                              No. 05-75957
               Petitioner-Appellant,
               v.                           Tax Ct. No.
                                               4066-02
COMMISSIONER OF INTERNAL                      OPINION
REVENUE,
             Respondent-Appellee.
                                       
               Appeal from a Decision of the
                 United States Tax Court

                  Argued and Submitted
            June 5, 2007—Pasadena, California

                 Filed September 14, 2007

  Before: Sidney R. Thomas, Kim McLane Wardlaw, and
             Ronald M. Gould, Circuit Judges.

                  Opinion by Judge Gould




                            12375
12378             ESTATE OF BIGELOW v. CIR


                         COUNSEL

Franklin T. Bigelow, Jr., Klicka, Parrish & Bigelow, Pasa-
dena, California, for appellant Estate of Virginia A. Bigelow.

Jonathon S. Cohen and Michael J. Haungs, United States
Department of Justice, Tax Division, Washington D.C., for
appellee Commissioner of Internal Revenue.
                    ESTATE OF BIGELOW v. CIR                  12379
                            OPINION

GOULD, Circuit Judge:

   The Estate of Virginia A. Bigelow (“the Estate”) appeals
the decision of the United States Tax Court upholding a defi-
ciency in the Estate’s federal estate tax return imposed by
appellee Commissioner of Internal Revenue (“the Commis-
sioner”). We consider the applicability of § 2036(a) of the
Internal Revenue Code, 26 U.S.C. § 2036(a), which recap-
tures in a decedent’s gross estate the value of certain assets
transferred inter vivos. Upon Ms. Bigelow’s death, the Estate
filed a federal estate tax return that applied a 37% discount for
lack of control and marketability to her remaining interest in
a family limited partnership that held a residential property
Ms. Bigelow had transferred before her death. The Commis-
sioner filed a notice of deficiency and assessed an additional
$217,480.05 in federal estate tax, claiming that the resi-
dence’s fair market value, rather than the value of the partner-
ship shares subject to the discount, should be included in the
gross estate. The Tax Court affirmed the deficiency determi-
nation, finding that Ms. Bigelow and the Bigelow children
had an implied agreement that Ms. Bigelow would retain
income and economic enjoyment from the transferred asset,
and that the inter vivos transfer was not a bona fide sale for
adequate and full consideration under 26 U.S.C. § 2036(a).
We have jurisdiction under 26 U.S.C. § 7482(a)(1). We
affirm.

                                 I

  Virginia A. Bigelow (“decedent”) died testate on August 8,
1997, at the age of eighty-eight.1 She was survived by her son,
Franklin T. Bigelow, Jr. (“Bigelow”), who is the executor of
  1
   The facts we recite are undisputed facts, as determined by the Tax
Court. See generally Estate of Bigelow v. Comm’r, 89 T.C.M. (CCH) 954
(2005).
12380             ESTATE OF BIGELOW v. CIR
the Estate, was attorney in fact pursuant to a durable power
of attorney from 1986 until decedent died, and is the attorney
of record for this appeal; by her daughter Virginia L. Burke
(“Burke”); and by nine grandchildren.

   In 1963, decedent and her husband purchased as their prin-
cipal residence a beachfront house on Sand Point Road in
Carpinteria, California (“the Sand Point Road property”).
Decedent became the sole owner of that property in 1966
when her husband died, and lived there until 1992. Decedent
gave each of her three children — Bigelow, Burke and Katha-
rine B. Fitzgerald (“Fitzgerald”) (deceased) — a 1/175th
undivided interest in the Sand Point Road property in 1990 or
1991. These gifts were in keeping with decedent’s practice of
making cash gifts to her children every year around Christ-
mas, each of which fell below the threshold level where gift
tax liability would accrue.

                              A

   In 1991, decedent executed a declaration and agreement of
trust (“the trust agreement”) and a deed transferring her
remaining 98.2857% undivided interest in the Sand Point
Road property to the trust, over which she and Bigelow acted
as co-trustees.

   On March 9, 1992, decedent suffered a debilitating stroke.
After she was released from the hospital, she moved to an
assisted-living facility in Alhambra, California and never
again lived at the Sand Point Road property. After the stroke,
Bigelow assumed control over decedent’s financial concerns
and paid her bills. Aside from the principal asset of the Sand
Point Road property, decedent had a personal bank account
and an account held under a revocable trust left by her late
husband, which together totaled about $23,047. In the fall of
1992, the trust listed the Sand Point Road property for sale.
In January 1993, the trustees and decedent’s children (collec-
tively “the Bigelow children”) entered into an exchange and
                  ESTATE OF BIGELOW v. CIR              12381
leaseback agreement with Peter and Margaret Seaman (“the
Seamans”), who owned a residence on Padaro Lane in Car-
pinteria, California (“the Padaro Lane property”). Under the
exchange agreement, the trust and the Bigelow children
agreed to transfer to the Seamans the Sand Point Road prop-
erty, appraised at $1,325,000, and the Seamans agreed to pay
the Bigelows $125,000 and to transfer to the trust the Padaro
Lane property valued at $1,200,000. As part of the agreement,
the trust agreed to lease the Padaro Lane property to the Sea-
mans, with a monthly rent of $3,500 under an initial term of
twelve months, until the Seamans could build a new house on
the Sand Point Road property. The Bigelow children also
transferred their fractionalized interests to the Seamans and
received $68,630 in return.

  To repay the two existing mortgages on the Sand Point
Road property, the trust obtained a $350,000 loan from Great
Western Savings and Loan (“Great Western”), which was evi-
denced by a promissory note and secured by a first position
deed of trust on the Padaro Lane property in favor of the
bank, which included the assignment of rents as additional
collateral. Decedent and Bigelow guarantied the performance
of the trust under the promissory note. Decedent signed the
exchange agreement and the deed transferring the Sand Point
Road property to the Seamans. Bigelow signed the other doc-
uments, including the loan guaranties, for himself as trustee
and for decedent under the power of attorney.

   In December 1993, the trust obtained a $100,000 line of
credit from Union Bank secured by a second position deed of
trust on the Padaro Lane property. Decedent guarantied the
performance of the trust under the line of credit. The trust
drew down $100,000 on this line of credit between December
1993 and November 1994, in part to make cash gifts to dece-
dent’s children and grandchildren.
12382                ESTATE OF BIGELOW v. CIR
                                  B

   In December 1994, the trust and the Bigelow children exe-
cuted a limited partnership agreement (“the partnership agree-
ment”) that formed Spindrift Associates, Ltd., a California
limited partnership (“Spindrift” or “the partnership”),2 whose
stated purpose was to engage in the business of owning and
operating residential real property, i.e., the Padaro Lane prop-
erty. The partnership agreement prohibited the partnership
from engaging in any other principal business. The partner-
ship agreement permitted the partnership to issue share units
with different rights and preferences. Each unit represented a
contribution of cash or property of $100. “A units” were
issued to limited partners for cash, while “B units” were
issued to limited partners in exchange for contributions of
property.

   The trust was both the sole general partner and a limited
partner. The Bigelow children were limited partners. In
December 1994, the trust contributed $500 to the partnership
in exchange for a 1% interest as general partner, and the trust
and the Bigelow children each contributed $100 in exchange
for one A unit. On December 22, 1994, the trust transferred
the Padaro Lane property, then worth $1,450,000, to the part-
nership in exchange for 14,500 B units. However, the partner-
ship provided that the transferred real property would be
encumbered by the Great Western and Union Bank debts for
which decedent remained personally liable. Decedent, in her
capacity as grantor and beneficiary of the trust, also agreed to
hold the partnership harmless for the Great Western loan and
the Union Bank line of credit. The partnership agreement
required that the trust’s capital account be reduced to the
extent that partnership funds were used to pay any of the prin-
cipal on the Great Western loan or the Union Bank line of
credit.
  2
   This type of partnership is also generally known as a family limited
partnership (“FLP”).
                  ESTATE OF BIGELOW v. CIR               12383
   As of February 7, 1995, after the Seamans vacated the
Padaro Lane property, the partnership leased it at $3,500 per
month to Michael Healy and Timothy Walsh under a 24-
month lease. In August 1995, decedent’s long-term care insur-
ance expired, prompting the Bigelow children to consider the
sale of the Padaro Lane property. Up to this point, the rental
receipts from the Padaro Lane property were deposited into a
partnership bank account, and the expenses for the Padaro
Lane property were paid from partnership funds. Despite
decedent’s personal obligation to make the $2,000 monthly
payment on the Great Western loan, the partnership made
each payment in her stead, while decedent’s trust paid $750
monthly toward the Union Bank debt.

   Decedent initially met her financial obligations, but her
revenue sources dwindled over time. At first, decedent
received income from a trust that she and her late husband
had established in 1954 (“the 1954 trust”), the corpus of
which was an insurance policy on the life of decedent’s hus-
band. When the partnership was formed in 1994, decedent
had monthly income of $9,300 from the following sources:
(1) residential care insurance policies and a Fireman’s Fund/
American Express policy: $2,100; (2) an AARP/Prudential
policy: $1,500; (3) rental income from the Padaro Lane prop-
erty: $3,500; and (4) other income: $2,200. Decedent’s
monthly expenses were: (1) assisted living: $3,600; (2) health
insurance supplement: $150; (3) miscellaneous medical:
$100; (4) servicing of Great Western loan: $2,000; (5) servic-
ing of the Union Bank debt: $750; (6) flood and liability
insurance: $350; (7) property taxes: $1,000; (8) storage: $150;
and (9) phone and miscellaneous costs: $50, all of which
totaled $8,350. After the Padaro Lane property was trans-
ferred to Spindrift, decedent no longer received the rent from
the real property and her income was reduced to $5,800
($9,300 - $3,500). Her expenses were reduced to $7,000
($8,350 - $1,350) by shifting the property taxes and home
owner’s insurance to Spindrift. The trust’s transfer of the
Padaro Lane property thus created a shortfall for decedent of
12384              ESTATE OF BIGELOW v. CIR
$1,200 ($5,800 - $7,000). Though the debt secured by the
Padaro Lane property was not transferred to the partnership,
the partnership nevertheless paid the $2,000 monthly payment
on the Great Western loan, which offset decedent’s shortfall.
After her death, decedent’s capital account was reduced to
reflect the extent to which these payments went toward the
principal of the loan. As the Estate concedes, however, most
of the monthly payment, especially at the beginning, went
toward the interest on this loan and was not offset by a debit
to decedent’s Spindrift account.

   The $1,500 monthly benefit under decedent’s AARP/
Prudential residential care insurance policy expired in August
1995, reducing decedent’s monthly income to $4,300 ($5,800
- $1,500), and creating a shortfall of $2,700 ($4,300 - $7,000).
In August 1996, the $2,100 monthly benefit under the Fire-
man’s Fund/American Express policy expired, further reduc-
ing decedent’s income to $2,200 ($4,300 - $2,100), which
created a deeper shortfall of $4,800 ($2,200 - $7,000). After
these policies expired, Bigelow informed the trustee of the
1954 trust that decedent did not have enough income to pay
her expenses. As a result, the trustee of the 1954 trust dis-
bursed the remaining assets and terminated the 1954 trust. By
April 1997, the trustee had distributed a total of $68,214 to
decedent from the 1954 trust.

   On August 8, 1997, decedent died. Bigelow, as trustee,
signed a statement of ownership in which he certified the fol-
lowing division of Spindrift shares, which reflected the gifted
interests by decedent during her lifetime: Decedent’s trust: 1
A Unit, 8,250 B Units; Estate of Fitzgerald: 1 A Unit, 2,500
B Units; Burke: 1 A Unit, 2,700 B Units; Bigelow: 1 A Unit,
1,050 B Units. The total partnership interest was 4 A Units
and 14,500 B Units. Bigelow certified that decedent’s nine
grandchildren had income rights associated with 1,800 B units
(200 units each), though the B units themselves were still
owned by the trust as general partner because the grandchil-
dren were never substituted as limited partners. Disregarding
                   ESTATE OF BIGELOW v. CIR                12385
the limited partnership interests associated with the income
rights transferred to decedent’s grandchildren, decedent’s
trust owned a 1% general partnership interest and a 45% lim-
ited partnership interest in the partnership on August 8, 1997.

   From April 6, 1995 to August 8, 1997, Bigelow transferred
funds between the Spindrift partnership and decedent’s trust
forty times. Bigelow transferred funds from the trust to the
partnership soon after it was formed to pay the property taxes
on the Padaro Lane property. These transfers, which are char-
acterized by the Estate as “loans,” were interest free and unac-
companied by a promissory note. Bigelow transferred funds
from the partnership to decedent’s trust to repay the earlier
advances and later to pay decedent’s expenses. When dece-
dent died, decedent’s trust owed Spindrift $3,500 - $1,500 for
a “loan” in July 1997 and $2,000 to cover funeral expenses.

   On September 3, 1997, the partnership agreed to sell the
Padaro Lane property for $1,475,000. The partnership
received $949,490.33 from the sale on November 21, 1997
after decedent’s debt was fully retired. The partnership began
distributing the proceeds to the partners, including the trust,
by December 1997. Until then, the partnership had not made
formal distributions to its partners, notwithstanding any “ad-
vances” made to decedent before her death. After her death,
the trust continued to act as the general partner of the partner-
ship until the partnership was terminated as of December 31,
1998. Final distributions were made to the partners, and the
partnership’s dissolution documents were recorded in the
office of the California Secretary of State.

                               C

   On November 9, 1998, Bigelow, as executor of decedent’s
estate, signed gift tax returns for 1994-97 and decedent’s
estate tax return, which the Internal Revenue Service (“IRS”)
received on November 12, 1998. On the gift tax returns, Bige-
low reported that decedent had made taxable gifts of $463,960
12386             ESTATE OF BIGELOW v. CIR
in 1994, $10,785 in 1995, zero in 1996, and $2,000 in 1997.
Bigelow reported that decedent had given limited partnership
interests in Spindrift to her children and grandchildren valued
at $61.85 per unit in 1994 and 1995, $67.79 per unit in 1996,
and $61.90 per unit in 1997, applying a 31% discount for lack
of marketability. Bigelow reported on the 1994 gift tax return
that decedent had made cash gifts of $10,000 to Bigelow and
$10,000 to his wife, forgiven Bigelow $150,000 of indebted-
ness evidenced by a promissory note, and assigned interests
in a promissory note payable to decedent by Bigelow to
Franklin T. Bigelow III and Anna D. Bigelow, at $5,000 each.
Bigelow also reported on the 1995-97 gift tax returns com-
bined cash gifts to himself and his wife of $7,350 in 1995,
$7,500 in 1996, and $22,000 in 1997.

   On the estate tax return, Bigelow reported a gross estate of
$175,957.57 and taxable gifts of $463,070. The amount
reported as the gross estate included $10,000 of personal
property, the refund of a $2,460 deposit owed to decedent by
the assisted-living facility, and $163,497 of transfers during
decedent’s life. The amount reported as transfers during dece-
dent’s life included $135,079.88 for decedent’s limited part-
nership shares in Spindrift; $19,912.50 for her general
partnership interest in Spindrift; $5,416.83 held by the trust
($8,492.30 in a Merrill Lynch cash account offset by an over-
draft of $3,075.47 in the checking account); a $169.38 cash
payment due from Boston Company; and $2,918.98 in a sav-
ings account.

   In computing the value of decedent’s limited partnership
interest ($135,079.88) on the estate tax return, the Tax Court
determined that Bigelow applied the following calculation:
“(1) Computed 44% of $1,475,000 (the value of the Padaro
Lane property); i.e., $649,480.85, (2) subtracted $435,069.75;
i.e., the amount of the Great Western Bank loan and the
Union Bank line of credit secured by the property, and (3)
applied to the remainder a 37-percent discount for lack of
marketability.” Bigelow v. Comm’r, 89 T.C.M. (CCH) 954,
                      ESTATE OF BIGELOW v. CIR                       12387
959 (2005). Bigelow also reported that the value of decedent’s
general partnership interest was $19,912.50, computed by tak-
ing 1% of the value of the Padaro Lane property and applying
a 35% control premium.

   After an audit, the IRS issued a notice of deficiency of
$217,480.05 on October 29, 2001. The IRS determined that
the full value of the Padaro Lane property, rather than the
value of decedent’s interest in Spindrift discounted for lack of
control and marketability, should be included in the gross
estate because decedent had retained “the possession, enjoy-
ment, or the right to income from the asset that she transferred
to Spindrift . . . within the meaning of Internal Revenue sec-
tion 2036(a).”3

   After a bench trial, the Tax Court upheld the deficiency
imposed by the Commissioner. The Tax Court concluded that
“Decedent’s use of partnership income to replace the income
lost because of the transfer of the Padaro Lane property to the
partnership shows that there was an implied agreement
between decedent and her children that she would retain the
right to the income from the Padaro Lane property.” Id. at
960. The Tax Court also found decedent used partnership
income to secure the Great Western loan and the Union Bank
line of credit, which further evidenced an implied agreement
that “she would retain for her life the present economic bene-
fit of the Padaro Lane property.” Id. Finally, the Tax Court
determined that the transfer of the Padaro Lane property was
not made in good faith because the transfer would have “im-
poverished” decedent, i.e., left her unprepared to meet her
financial needs absent an implied agreement that Spindrift
would supplement her income, id. at 960; the Bigelow chil-
dren had not implemented partnership formalities, id. at 960-
  3
   As discussed infra, § 2036(a) “recaptures certain assets transferred
prior to death in the gross estate.” Kimbell v. United States, 371 F.3d 257,
260 (5th Cir. 2004).
12388              ESTATE OF BIGELOW v. CIR
61; and there was no evidence that any nontax purpose ani-
mated the formation of Spindrift. Id. at 961.

  The Estate timely appeals.

                               II

   The Estate advances two main arguments that the Tax
Court erred in upholding the Commissioner’s deficiency
determination. First, the Estate argues that the Tax Court
clearly erred in finding that there was an implied agreement
that decedent would retain the enjoyment of, or derive income
from, the Padaro Lane property. Second, the Estate argues
that the Tax Court erred in concluding that the “bona fide sale
for an adequate and full consideration” exception under
§ 2036(a) did not apply to the transfer of the Padaro Lane
property from the trust to the Spindrift family partnership.

   The federal estate tax imposed under the Internal Revenue
Code applies generally to the value of assets that pass from
an individual at death to the beneficiaries of the decedent’s
estate. See 26 U.S.C. § 2001. A “taxable estate” is defined as
“the value of the gross estate,” less applicable deductions, id.
§ 2051, where the value of the “gross estate” includes “the
value of all property to the extent of the interest therein of the
decedent at the time of his death.” Id. § 2033. In addition,
§ 2036(a) (“Transfers with retained life estate”) provides:

    The value of the gross estate shall include the value
    of all property to the extent of any interest therein of
    which the decedent has at any time made a transfer
    (except in case of a bona fide sale for an adequate
    and full consideration in money or money’s worth),
    by trust or otherwise, under which he has retained
    for his life or for any period not ascertainable with-
    out reference to his death or for any period which
    does not in fact end before his death—
                    ESTATE OF BIGELOW v. CIR               12389
         (1) the possession or enjoyment of, or the
         right to the income from, the property . . . .

Id. § 2036(a)(1).

   [1] Section 2036(a)(1) is designed to recapture the value of
certain assets transferred by the decedent during his or her
lifetime where the decedent has retained economic benefits
from the transferred asset. See Kimbell, 371 F.3d at 261. “Sec-
tion 2036(a) is . . . intended to prevent parties from avoiding
the estate tax by means of testamentary substitutes that permit
a transferor to retain lifetime enjoyment of purportedly trans-
ferred property.” Strangi v. Comm’r, 417 F.3d 468, 476 (5th
Cir. 2005), pet. for r’hrg granted on other grounds, 429 F.3d
1154 (5th Cir. 2005); see also Estate of Thompson v. Comm’r,
382 F.3d 367, 375 (3d Cir. 2004). This value-recapturing pro-
vision under § 2036(a) is in keeping with longstanding con-
gressional recognition that inter vivos gifts would undermine
the effectiveness of the federal estate tax if the IRS could not
recoup the value of “transfers that are essentially testamentary
— i.e., transfers which leave the transferor a significant inter-
est in or control over the property transferred during his life-
time.” United States v. Estate of Grace, 395 U.S. 316, 320
(1969) (holding assets transferred inter vivos under reciprocal
trusts could not escape operation of predecessor statute to
§ 2036); see also Helvering v. Hallock, 309 U.S. 106, 114
(1940) (recognizing “the governing principle of § 302(c) [of
the Revenue Act of 1926] that Congress meant to include in
the gross estate inter vivos gifts which may be resorted to, as
a substitute for a will, in making dispositions of property
operative at death”) (internal quotation marks omitted).

   [2] An estate can avoid the operation of § 2036(a)(1) by
demonstrating that the decedent did not retain “the possession
or enjoyment of, or the right to the income from, the proper-
ty.” 26 U.S.C. § 2036(a)(1). Even where the decedent has
retained an interest in the transferred asset, moreover,
§ 2036(a) is inapplicable if the asset was transferred in a
12390             ESTATE OF BIGELOW v. CIR
“bona fide sale for an adequate and full consideration in
money or money’s worth.” § 2036(a); see also Thompson,
382 F.3d at 375; Strangi, 417 F.3d at 478; Estate of Maxwell
v. Comm’r, 3 F.3d 591, 593, 595 (2d Cir. 1993).

   We address first whether the decedent, Ms. Bigelow,
retained any cognizable economic benefits from the Padaro
Lane property under § 2036(a)(1) after the trust’s transfer of
the real property to Spindrift. We agree with the Tax Court
that decedent and the Bigelow children impliedly agreed that
decedent would have access to income from the transferred
property and that decedent continued to enjoy the economic
benefit that the property secured her personal debt. Next, we
address the question of whether the transfer of the property
was a “bona fide sale for an adequate and full consideration”
under § 2036(a)’s parenthetical exception. We conclude that
the Tax Court correctly upheld the deficiency.

                              A

   [3] Applicability of § 2036(a)(1) turns on whether “there is
an express or implied agreement at the time of transfer that
the transferor will retain lifetime possession or enjoyment of,
or right to income from, the transferred property.” Thompson,
382 F.3d at 375. The existence of an implied agreement is a
question of fact reviewed for clear error. See Estate of Korby
v. Comm’r, 471 F.3d 848, 852 (8th Cir. 2006). “In reviewing
for clear error, we ask only whether the Tax Court’s findings
are supported by evidence in the record as a whole, not
whether we would necessarily reach the same conclusions.”
Strangi, 417 F.3d at 480.

  The Tax Court found that there was an implied agreement
between decedent and the Bigelow children that decedent
would retain income and the benefit of using the Padaro Lane
property to secure her debt. As to the retained income, the
Tax Court explained:
                  ESTATE OF BIGELOW v. CIR               12391
    After the partnership was formed, decedent used
    $2,000 of the $2,150 net income from the rental of
    the Padaro Lane property to make monthly payments
    on the Great Western loan. After the AARP/
    Prudential residential care insurance policy expired
    in August 1995, decedent’s expenses exceeded her
    income by $2,700. The partnership continued to
    make the $2,000 payments on the Great Western
    loan, and Mr. Bigelow transferred partnership funds
    to decedent’s trust to support decedent. No distribu-
    tions were made to any other partner before dece-
    dent’s death.

Bigelow v. Comm’r, 89 T.C.M. (CCH) 954, 959-60 (2005).
As to the decedent’s retention of the Padaro Lane property as
security for her personal debt, the Tax Court found:

    After the transfer of the Padaro Lane property to
    Spindrift, the property continued to secure dece-
    dent’s legal obligation to pay the $350,000 Great
    Western Bank loan and the $100,000 Union Bank
    line of credit. Thus, decedent retained the economic
    benefit of ownership of the Padaro Lane property
    after it was transferred to the partnership.

Id. at 960.

   The Estate disputes the Tax Court’s first finding, arguing
that decedent did not receive income in the form of debt can-
cellation or otherwise because under the partnership agree-
ment each debt payment toward the principal was reduced
from decedent’s share in Spindrift and shifted to the other
partners. The Estate disputes the Tax Court’s second finding,
claiming that Spindrift assumed a “practical liability” for the
Great Western loan, even though the decedent remained per-
sonally liable for this debt and the Union Bank line of credit.
The Estate rests its theory of practical liability on two
grounds. The Estate first contends that under the Deed of
12392              ESTATE OF BIGELOW v. CIR
Trust, the trust assigned rental income from the Padaro Lane
property to Great Western as additional collateral for the loan;
and second that the transfer of the Padaro Lane property to
Spindrift carried with it a practical obligation to meet the loan
repayment schedule with the rental income to avoid foreclo-
sure. The Commissioner responds that the practical necessity
that Spindrift repay the debt is evidence itself of an implied
agreement that the Bigelow children would supplement dece-
dent’s financial needs because decedent’s transfer of her main
asset, while retaining the indebtedness secured by it, would
have left her unable to meet her monthly expenses without
resort to partnership funds.

   [4] We agree with the Commissioner. A key problem with
the conveyance of the Padaro Lane property to Spindrift is,
for estate tax purposes, that the Great Western and Union
Bank debt that was secured by the property was not also
transferred. This discrepancy indicates that Spindrift repaid
the debt in decedent’s stead despite no legal obligation to do
so. Because Spindrift used funds to make these payments of
debt that were derived from income on the property decedent
had purported to transfer to Spindrift, it supports the Commis-
sioner’s position that decedent retained an interest in the prop-
erty. In an effort to deflect the significance of decedent’s legal
obligation to repay her debt, the Estate argues that it had a
“practical liability” to make the $2,000 monthly payment pur-
portedly to avoid foreclosure. But whether or not Spindrift
had any practical need to make monthly payments does not
undercut the finding that decedent retained the economic ben-
efit from the transferred property.

   [5] As to the Estate’s second theory, the Tax Court also did
not clearly err in finding an implied agreement, in light of the
entire record, that decedent was to receive income from the
Padaro Lane property. Bigelow testified that his mother, the
decedent, wanted her initial contribution of the property, and
any potential gifted partnership shares “to be free and clear of
the debt . . . — she felt it was her responsibility to keep . . .
                  ESTATE OF BIGELOW v. CIR               12393
those obligations.” As a practical matter, however, decedent
shifted her responsibility to the partnership. First, assuming
arguendo the propriety of debiting decedent’s capital account
post mortem to reflect the extent to which these payments
went toward the principal of the Great Western loan, Bigelow
testified before the Tax Court and conceded at oral argument
that any payment toward the loan interest was not similarly
debited. Bigelow also testified that interest payments con-
sumed the majority of each payment. In light of this conces-
sion, it is clear that decedent received income each month —
slightly less than $2,000 according to the Estate’s testimony
— because Spindrift paid the interest on the loan that she was
legally obligated to pay, and in this sense decedent retained
an interest in the property that decedent had purported to
transfer to Spindrift.

   The record also supports the Tax Court’s finding that dece-
dent received piecemeal income to supplement her financial
needs. In the absence of an expectation that the partnership
would supplement decedent’s monthly income as necessary,
the transfer of the Padaro Lane property — her major asset —
would have impoverished decedent and left her vulnerable to
monthly shortfalls. The Bigelow children knew that the dece-
dent’s long-term care coverage was of fixed duration — the
AARP/Prudential residential care insurance policy was set to
expire in August 1995 and the Fireman’s Fund/American
Express policy in August 1996 — with the foreseeable possi-
bility that decedent might outlive the coverage. In this event,
decedent stood to lose $3,600 per month after the expiration
of the second policy in August 1996. Yet both Bigelow and
Burke testified that they were unwilling to pay for their moth-
er’s care out of their own funds. This testimony supports the
Tax Court’s finding. In the foreseeable absence of other
funds, and the fact that decedent received a $1,500 “loan” in
July 1997 and Spindrift advanced $2,000 after decedent’s
death to cover funeral expenses, it is a reasonable inference
that the Bigelow children and decedent had an implied agree-
12394              ESTATE OF BIGELOW v. CIR
ment that decedent could access funds as needed that were
derived from the Padaro Lane property.

   The Bigelow children also testified that as the expiration of
the Fireman’s Fund/American Express policy in August 1996
approached, the Bigelow children began taking steps to put
the Padaro Lane property on the market to liquidate the asset
and have funds available to cover the decedent’s living
expenses. In fact, Burke testified that because she would not
pay decedent’s additional expenses out of her own pocket, she
viewed liquidation of decedent’s Spindrift shares through sale
of the house as the only option. The Bigelow children also
testified that they were committed to their mother’s care and
maintaining her in a manner to which she was accustomed.
This testimony suggests that the decedent’s need of funds,
rather than other unrelated business criteria that might have
informed partners operating at arm’s length, drove Spindrift’s
decision after August 1996 to consider liquidating the asset.

   The Tax Court’s finding that partnership formalities were
not observed buttresses the conclusion that there was an
implied agreement. Bigelow testified that the partnership
accounts were not regularly re-balanced to reflect the monthly
$2,000 payments toward the Great Western debt that Spindrift
made for decedent. The Estate relies on a provision in the
partnership agreement that Spindrift funds could be used “to
retire any of the principal of the Contribution Debt (at the
time of the sale of the Property, or, otherwise)” to suggest that
the partners’ capital accounts could have been re-balanced
after the sale of the Padaro Lane property in compliance with
partnership formalities. Reliance on this provision in the part-
nership agreement is unavailing. It is inconsistent that dece-
dent’s capital account was duly debited in annual updates to
reflect the yearly gifts made to children and grandchildren
between 1994 and 1997, yet a similar annual update was not
implemented to reflect the payments of the Great Western
debt during the same period. Moreover, no other partner bene-
fited from such an informal and ad hoc access to partnership
                   ESTATE OF BIGELOW v. CIR               12395
funds. Finally, the post mortem accounting indicates that the
decedent and FLP had an implied agreement that decedent
could access income from the transferred asset. See Estate of
Reichardt v. Comm’r, 114 T.C. 144, 155 (2000) (finding
“yearend and . . . post mortem adjusting entries made by [a
certified public accountant] were a belated attempt to undo
decedent’s commingling of partnership and personal
accounts”).

   The facts here are analogous to the Thompson and Korby
cases, which upheld the Commissioner’s deficiencies in the
context of FLPs. In Thompson, the Third Circuit upheld the
Tax Court’s finding of an implied agreement to retain control
where decedent transferred 95% of his assets to FLPs, did not
retain sufficient assets to support himself for the remainder of
his life, and the FLPs made significant cash distributions to
the decedent in the three years before his death. See 382 F.3d
at 376. Likewise in Korby, the Eighth Circuit concluded that
the Tax Court’s findings of an implied agreement were not
clearly erroneous where the FLP made several distributions to
the decedents’ living trusts in the three years prior to their
deaths in part to defray the cost of one decedent’s nursing
home costs. See 471 F.3d at 850, 853. Spindrift regularly paid
the interest on decedent’s loans and any payment toward the
principal was not promptly debited from the decedent’s capi-
tal account. Although these payments may have differed in
form from those in Thompson and Korby, they nonetheless
provided supplemental income that defrayed the monthly cost
of decedent’s assisted-living as her insurance coverage lapsed.

   [6] The Tax Court here did not commit clear error in deter-
mining under § 2036(a)(1) that decedent retained the eco-
nomic benefit from the transferred asset because decedent
continued to use the Padaro Lane property to secure her debt,
and because Spindrift paid the monthly payments on the Great
Western loan despite decedent’s personal obligation to do so.
Also, the Tax Court committed no clear error in determining
that there was an implied agreement that the Bigelow children
12396                    ESTATE OF BIGELOW v. CIR
through Spindrift would supplement decedent’s financial
needs before her death as such needs arose.

                                       B

   [7] The Estate can escape the value-recapturing mechanism
under § 2036(a) if it demonstrates that the transfer was “a
bona fide sale for an adequate and full consideration in money
or money’s worth” under the provision’s parenthetical excep-
tion. 26 U.S.C. § 2036(a).

                                        1

   Assessment of the “adequate and full consideration” ele-
ment in § 2036(a) is not straightforward in this context
because of the nature of the real property transferred to the
FLP. Here, the value of the real property was reconfigured
from its fair market price into pro rata partnership interests,
which may be subject to a discount from the devaluation in
the decedent’s partnership interest due to a lack of control and
marketability.4 See Strangi, 417 F.3d at 473 (“Because a part-
nership interest is worth less for tax purposes than a propor-
  4
   One commentator has explained the rationale for the discount for lack
of control and marketability:
      Because the transferee of a partnership interest is guaranteed only
      to receive distributions that would have been made to the trans-
      feror, an unrelated third party would discount the value of the
      transferred interest on account of the inability to participate in
      decisions affecting management of the partnership affairs. Fur-
      thermore, due to the transferee’s inability to require the partner-
      ship interest to be redeemed and the absence of an established
      market on which an interest in a closely held partnership can be
      readily liquidated, the value of the transferred interest will be dis-
      counted to reflect its lack of marketability.
See Brant J. Hellwig, Revisiting Byrum, 23 Va. Tax Rev. 275, 278 n.8
(2003); see also id. at 277-78 (“It is common knowledge that valuation
discounts are the driving force behind the widespread use of limited part-
nerships to transmit wealth.”).
                   ESTATE OF BIGELOW v. CIR               12397
tional share of the partnership’s assets — due to lack of direct
control and non-liquidity — this ‘exchange’ would reduce the
taxable value of the estate.”).

  The Estate urges us to adopt the Fifth Circuit’s test for “ad-
equate and full consideration” set forth in Kimbell:

    The proper focus . . . on whether a transfer to a part-
    nership is for adequate and full consideration is: (1)
    whether the interests credited to each of the partners
    was proportionate to the fair market value of the
    assets each partner contributed to the partnership, (2)
    whether the assets contributed by each partner to the
    partnership were properly credited to the respective
    capital accounts of the partners, and (3) whether on
    termination or dissolution of the partnership the part-
    ners were entitled to distributions from the partner-
    ship in amounts equal to their respective capital
    accounts.

See Kimbell, 371 F.3d at 266; see also Strangi, 417 F.3d at
478 (holding that the consideration requirement “is met only
where any reduction in the estate’s value is ‘joined with a
transfer that augments the estate by a commensurate . . .
amount.’ ” (quoting Kimbell, 371 F.3d at 262) (alteration in
original)).

   The Estate claims that it meets the first prong of the Kim-
bell test because the decedent transferred the Padaro Lane
property, valued at $1,450,000, in exchange for 14,500 lim-
ited partnership units (“B Units” valued at $100). This
exchange, continues the Estate, was proportional because
decedent initially took a 99.98% interest in Spindrift and the
Bigelow children took only a 00.0025%, which reflected their
respective $100 contributions. As for the second and third
prongs, the Estate argues that the capital accounts belonging
to each partner were credited with the amount proportionate
to each respective contribution (albeit post mortem), and that
12398               ESTATE OF BIGELOW v. CIR
each partner received commensurate distribution upon disso-
lution. The Commissioner counters that it is inconsistent to
assert on the one hand that the decedent received a propor-
tional number of limited partnership shares in exchange for
the fair market value of the Padaro Lane property, while
simultaneously claiming that the partnership interests are enti-
tled to a substantial discount for lack of control and market-
ability for estate tax purposes.

   In Estate of Harper v. Commissioner, the Tax Court
declined to adopt the per se rule suggested in the Commis-
sioner’s argument that a decedent could not have transferred
an asset to an FLP for “adequate and full consideration” in
light of the consequent reduction in value that results from the
lack of control and marketability. 83 T.C.M. (CCH) 1641,
1654 (2002) (“[I]t is not unreasonable to assume that a genu-
ine pooling for business purposes injects something different
into the adequate and full consideration calculus than does
mere, unilateral value ‘recycling’ . . . . In the former situation,
there is at least the potential that intangibles stemming from
a pooling for joint enterprise might support a ruling of ade-
quate and full consideration.”) (emphasis added). In Kimbell,
the Fifth Circuit likewise rejected the Commissioner’s incon-
sistency argument:

    The business decision to exchange cash or other
    assets for a transfer-restricted, non-managerial inter-
    est in a limited partnership involves financial consid-
    erations other than the purchaser’s ability to turn
    right around and sell the newly acquired limited part-
    nership interest for 100 cents on the dollar. Investors
    who acquire such interests do so with the expectation
    of realizing benefits such as management expertise,
    security and preservation of assets, capital apprecia-
    tion and avoidance of personal liability.

371 F.3d at 266. The Third Circuit also acknowledged that
“the dissipation of value resulting from the transfer of market-
                   ESTATE OF BIGELOW v. CIR                12399
able assets to a closely-held entity will not automatically con-
stitute inadequate consideration for purposes of § 2036(a).”
Thompson, 382 F.3d at 381 (emphasis added) (citing Harper
v. Comm’r, 83 T.C.M. (CCH) 1641, 1654 (2002)).

   [8] We agree with the Third and Fifth Circuits and the Tax
Court that an inter vivos transfer of real property to a family
limited partnership, which inherently reduces the fair market
price of the resultant partnership interests, does not per se dis-
qualify the transfer from falling under § 2036(a)’s exception.
As the qualifying language in all the cases suggests, however,
the Estate must demonstrate more than a proportional
exchange between $1,450,000 fair market value and 14,500 B
Units valued at $100. To avoid the reach of § 2036(a), the
Estate must also show the “genuine” pooling of assets, see
Harper v. Comm’r, 83 T.C.M. (CCH) 1641, 1654 (2002), and
a “ ‘potential [for] intangibles stemming from pooling for
joint enterprise,’ ” Thompson, 382 F.3d at 381 (alteration in
original) (quoting Harper, 83 T.C.M. at 1654). The validity
of the adequate and full consideration prong cannot be gauged
independently of the non-tax-related business purposes
involved in making the bona fide transfer inquiry.

   [9] In this context, we consider the “bona fide sale” and
“adequate and full consideration” elements as interrelated
criteria. See Estate of Bongard v. Comm’r, 124 T.C. 95, 118-
19 (2005) (“In the context of family limited partnerships, the
bona fide sale for adequate and full consideration exception
is met where the record establishes the existence of a legiti-
mate and significant nontax reason for creating the family
limited partnership, and the transferors received partnership
interests proportionate to the value of the property trans-
ferred.”). But see Strangi, 417 F.3d at 478 (treating § 2036(a)
exception as having two “discrete requirements”).

  [10] In Estate of Bongard, the Tax Court explained that a
“bona fide” transfer is “applicable only where there was an
arm’s-length transaction.” 124 T.C. at 122. Although intra-
12400                  ESTATE OF BIGELOW v. CIR
family transfers are permitted under section § 2036(a), they
are subject to “heightened scrutiny.” See Kimbell, 371 F.3d at
263. Courts look to whether the “terms of the transaction dif-
fered from those of two unrelated parties negotiating at arm’s
length.” Bongard, 124 T.C. at 123. The crux of the bona fide
transfer inquiry is whether the taxpayer can demonstrate that
the transfer had “legitimate and significant nontax reasons.”
Id.; see also Kimbell, 371 F.3d at 267. Courts that have con-
sidered this issue hold uniformly that an objective standard is
applied to determine whether the decedent’s inter vivos sale
of assets to an FLP was bona fide.5 See Korby, 471 F.3d at
854 (“ ‘[A] sale is bona fide if, as an objective matter, it
serves a substantial business [or] other non-tax purpose.’ ”)
(quoting Strangi, 417 F.3d at 479; Kimbell, 371 F.3d at 262-
63) (internal quotation marks and citation omitted; alteration
in original); Thompson, 382 F.3d at 383 (“[O]bjective indicia
that the partnership operates a legitimate business may pro-
vide a sufficient factual basis for finding a good faith trans-
fer.”); Kimbell, 371 F.3d at 265 (applying objective criteria to
distinguish the legitimate transfer from the “sham transaction
or disguised gift”); Bongard, 124 T.C. at 118 (“The objective
evidence must indicate that the nontax reason was a signifi-
cant factor that motivated the partnership’s creation.”).

                                     2

   The Tax Court found that the parenthetical exception did
not apply because the transfer of the Padaro Lane property to
the Spindrift partnership was not executed in good faith, rest-
ing its decision on three grounds: (1) the transfer resulted in
the impoverishment of the decedent, who, before the transfer,
  5
    In Wheeler v. United States, the Fifth Circuit first recognized that
before its amendment in 1976, the U.S. Tax Code contained a provision
recapturing into the gross estate “transfers ‘intended to take effect in pos-
session or enjoyment’ at or after the decedent’s death and those made ‘in
contemplation of death.’ ” 116 F.3d 749, 765 (5th Cir. 1997). In codifying
§ 2036(a), Congress intended to replace any subjective intent determina-
tions with objective requirements. Id. at 766.
                      ESTATE OF BIGELOW v. CIR                     12401
was able to meet her financial needs but required assistance
from the partnership afterward until her death, Bigelow v.
Comm’r, 89 T.C.M. (CCH) 954, 960 (2005); (2) the partner-
ship did not honor partnership formalities, id. at 960-61; and
(3) the transfer did not create a potential non-tax benefit for
the decedent.6 See id. at 961. We conclude that the Tax Court
did not err in declining to apply the parenthetical exception on
these bases.

   [11] With respect to the first two findings, the Tax Court
did not err in concluding that, in the absence of an implied
agreement that decedent would retain income, the transfer of
the Padaro Lane property in December 1994 — her major
asset — would have impoverished the decedent. The transfer
left her unable to meet her financial obligations whereas prior
to the transfer she had applied the $3,500 monthly rental
income under the Seaman’s lease toward her monthly expenses.7
That decedent’s trust transferred the Padaro Lane property,
which accounted for the vast bulk of her assets, invites salient
comparison with the Thompson and Korby cases.

   In Thompson, the Third Circuit examined the legitimacy of
two FLPs into which the decedent, at age ninety-five, trans-
ferred $2.8 million in assets ($2.5 million in the form of mar-
ketable securities) while retaining $153,000 in personal
assets. The decedent continued to receive an annual income
of $14,000 to offset yearly expenses of $57,202, with an actu-
  6
     We review the question whether there was a bona fide sale for an ade-
quate and full consideration for clear error. See Korby, 471 F.3d at 852;
Strangi, 417 F.3d at 479-80.
   7
     As the Tax Court calculated, “When decedent formed the partnership
in 1994, she had monthly income of $9,300 ($3,600 from two residential
care insurance policies, $3,500 from rent paid on the Padaro Lane prop-
erty, and $2,200 from other sources). . . . [H]er monthly expenses aver-
aged $8,350 ($3,600 for assisted living expenses, $2,750 for the Great
Western Bank loan and Union Bank line of credit, $1,350 for property
taxes and insurance, and $650 for other expenses).” Bigelow v. Comm’r,
89 T.C.M. (CCH) 954, 960 n.5 (2005).
12402              ESTATE OF BIGELOW v. CIR
arial life expectancy of 4.1 years. 382 F.3d at 370. The Third
Circuit upheld the Tax Court’s finding of an implied agree-
ment, pointing to the “general testamentary character of the
partnership arrangements” that supported the finding:

    Decedent transferred the vast majority of his invest-
    ment assets to two family limited partnerships when
    he was ninety-five years old. The record reveals,
    with one exception, that neither partnership engaged
    in business or loan transactions with anyone outside
    of the family. Transferring this type and volume of
    assets to family partnerships under these circum-
    stances is more consistent with an estate plan than an
    investment in a legitimate business.

Id. at 377 (footnote omitted). The Eighth Circuit similarly rec-
ognized that the extent to which a decedent transfers the
majority of his or her assets will be a probative factor in deter-
mining whether there was a legitimate, non-tax rationale for
the creation of and participation in an FLP. See Korby, 471
F.3d at 853 (noting that the Korbys retained less than $10,000
in assets in a living trust, their sole source of income, after
they contributed over $1.8 million to fund an FLP).

   As discussed supra, Spindrift did not assume the Great
Western debt when decedent’s trust conveyed to Spindrift the
Padaro Lane property, yet the partnership nonetheless made
monthly payments for decedent. Although the Estate argues
that Spindrift had a “practical liability” to make the $2,000
monthly payment (purportedly to avoid foreclosure), that does
not erase the fact that when the trust transferred the property
decedent did not, as a legal matter, receive adequate and full
consideration in light of her assumption of the debt. Con-
versely, that the Estate repaid the debt gratuitously suggests
that the transfer without the debt would have impoverished
her and that any anticipated shortfall could not be remedied
absent an implied agreement that Spindrift would supplement
decedent by servicing her debt.
                   ESTATE OF BIGELOW v. CIR                12403
   [12] As to the Tax Court’s second finding, any attempt to
treat other disbursements as “loans” is unpersuasive because
the partnership formality of proper accounting was not ade-
quately observed in re-balancing the partners’ capital
accounts to reflect the disbursements. As discussed supra, the
Estate’s post mortem debiting of decedent’s account is insuffi-
cient in the face of evidence of an implied agreement. See
Reichardt, 114 T.C. at 155.

   Finally, the Estate argues that the Tax Court clearly erred
in not recognizing that Spindrift had non-tax-related benefits.
First, the Estate argues that a partnership shielded the
included family members from personal liability for any inju-
ries occurring on the Padaro Lane property, whereas as ten-
ants in common they would have been exposed. This
argument is unsupported by the record. The Tax Court cor-
rectly found that the partnership provided no liability protec-
tion to decedent because her trust was both a limited partner
and a general partner. Also, there was no evidence that any of
Spindrift’s partners reasonably faced any genuine exposure to
liability that might have validated the partnership formation
for a non-tax purpose.

   The Estate’s lack of evidentiary support for its claim is
analogous to circumstances in which the Fifth and Eighth Cir-
cuits declined to accept potential liability exposure as a legiti-
mate, non-tax-related justification for the formation of an
FLP. In Korby, the Eighth Circuit rejected the estate’s unsup-
ported assertions that the FLP in that case “was created to
protect the family from commercial and personal injury liabil-
ity arising from their bridge-building business, as well as lia-
bility from divorce . . . [where] the estate ha[d] not shown that
the terms of the [FLP] agreement would prevent a creditor of
a partner from obtaining that partner’s [FLP] interest in an
involuntary transfer.” 471 F.3d at 854 (internal quotation
marks omitted). In Strangi, the Fifth Circuit was also uncon-
vinced by the estate’s claim that it was vulnerable to a per-
sonal injury claim where a housekeeper who had cared for the
12404                  ESTATE OF BIGELOW v. CIR
decedent had an accident on the decedent’s property and no
evidence was presented that the maid ever threatened to take
such action. See 417 F.3d at 480; cf. Kimbell, 371 F.3d at 268
(acknowledging legitimate risk of personal liability where
decedent transferred into FLP working interests in oil and gas
properties and, absent partnership formation, the family mem-
bers as individuals would have faced exposure for environ-
mental torts arising on those properties).

   [13] As in Korby and Strangi, the Tax Court committed no
clear error in rejecting the Estate’s proffered non-tax justifica-
tions absent some concrete incident or circumstance that rea-
sonably motivated the family to form a partnership to shield
itself from liability. The Tax Court did not clearly err in refus-
ing to credit claims that the partnership was formed in part to
shield the included family members from liability where the
Estate could point to no particular incident that could give rise
to a personal injury claim, and no general conditions of the
purported business venture that posed inherent risks of litiga-
tion.8 Under the same rationale, we also reject the proffered
nontax rationale that the formation of Spindrift would serve
to protect the Padaro Lane property from a partition sale.
There was no evidence that any of the Bigelow children or
grandchildren contemplated such an action, or that any of the
Bigelow children or grandchildren had creditors which might
resort to such a forced sale.

   The Estate also argues that consolidation of the real prop-
erty, with its fractionalized interests and absentee ownership,
into an FLP facilitated management of the Padaro Lane prop-
erty and enhanced the ease of gifting interests to decedent’s
children and grandchildren. The Tax Court correctly rejected
  8
   Bigelow testified that the Padaro Lane property, situated on the coast
in Carpinteria, California, caused the family concern because of the inher-
ent risk of a fall occurring from or around the seawall. In light of the entire
record, it was not clear error to disregard this evidence as speculative and
unpersuasive.
                   ESTATE OF BIGELOW v. CIR                12405
this claim. First, gift giving is considered a testamentary pur-
pose and cannot be justified as a legitimate, non-tax business
justification. See Thompson, 382 F.3d at 373-74, 379. More-
over, efficient management might count as a credible non-tax
business purpose, but only if the business of the FLP required
some kind of active management as in Kimbell. In that case,
the Fifth Circuit concluded that the working interests in the
decedent’s transferred oil and gas properties required active
management, which the partnership enhanced because it
allowed the participant family members to pool resources,
reduce administrative costs and protect the family concern in
case decedent’s son, who possessed the business expertise,
grew too ill to manage the business. See Kimbell, 371 F.3d at
268. Here, by contrast, the Padaro Lane property was Spin-
drift’s sole asset, required no active management, and was the
partnership’s only business. See Strangi, 417 F.3d at 481
(concluding transfer of assets had no legitimate non-tax ratio-
nale where the partnership “never made any investments or
conducted any active business following its formation”).

    There was no convincing evidence before the Tax Court
that Bigelow could not efficiently manage the property as
trustee of decedent’s trust, as he had done between 1991 and
1994. As such, the Tax Court could reasonably reject the
Estate’s contention that the alleged purpose of active manage-
ment motivated the formation of Spindrift, despite allegations
that the partnership conducted business transactions with
“tradesmen, repairmen, gardeners, utility companies, cleaning
service providers, real estate agents, [and] insurance brokers
. . . .” Bigelow testified that before formation of Spindrift, the
maintenance of the Padaro Lane property entailed little effort
or oversight. The tenant, Peter Seaman, simply telephoned
with a request for occasional repairs; Bigelow responded that
Seaman should bill him as trustee, and the trust reimbursed
the tenant. This testimony belies the implication of the
Estate’s claim that the “business” of renting the Padaro Lane
property was extensive, cumbersome or time consuming. That
“transactions” with repairmen and others occurred does not
12406              ESTATE OF BIGELOW v. CIR
transform simple home ownership into a business asset that
demands active management. The Tax Court did not clearly
err in distinguishing the asset here from the working interests
in oil and gas properties in Kimbell.

   Finally, we evaluate these arrangements through the height-
ened scrutiny of intra-family transactions. While FLPs are not
vehicles to circumvent estate tax liability per se, see Kimbell,
371 F.3d at 263, we consider whether “the terms of the trans-
action differed from those of two unrelated parties negotiating
at arm’s length.” Bongard, 124 T.C. at 123. Here, it is
improbable that two persons operating at arm’s length would
either assume that debt repayment would occur due to a
“practical liability,” or that interest-free “loans” between part-
ners would not be memorialized in a promissory note or
accompanied by prompt adjustment to the partners’ capital
accounts. Moreover, the fact that decedent retained personal
liability for $439,062 in debt secured by the transferred asset
further supports the Tax Court’s finding that the parenthetical
exception to § 2036 did not apply for lack of adequate and full
consideration for the Padaro Lane property.

                               III

   We conclude that the Tax Court properly found under
§ 2036(a)(1) that decedent retained an economic benefit from
the transferred asset because the Padaro Lane property contin-
ued to secure the debt for which decedent was personally lia-
ble. The Tax Court likewise did not err in determining that
decedent and the Bigelow children had an implied agreement
that decedent would derive income from the transferred asset
because Spindrift paid decedent’s monthly $2,000 payment on
the Great Western loan, and the record supported the finding
that in the absence of an implied agreement, decedent would
have been impoverished and unequipped to meet her financial
needs. We also conclude that the Tax Court correctly found
that the inter vivos transfer of the Padaro Lane property was
not executed for any legitimate, significant non-tax-related
                  ESTATE OF BIGELOW v. CIR               12407
business purpose based on objective criteria that would have
informed the partners of Spindrift if they had been operating
at arm’s length. To the contrary, the record supported the
finding that Spindrift was formed to facilitate the transfer of
the Padaro Lane property to decedent’s children and grand-
children primarily as a testamentary substitute, with the
advantage of lowering the gross estate by applying the dis-
counts for lack of control and marketability. The Tax Court
did not clearly err in determining that the transfer was not a
bona fide sale for an adequate and full consideration under
§ 2036’s parenthetical exception.

  AFFIRMED.
