                        T.C. Memo. 2011-22



                      UNITED STATES TAX COURT



  ESTATE OF ADELINA CHENG VAN, DECEASED, MICHAEL VAN, TRUSTEE,
                          Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5456-04.                 Filed January 27, 2011.



     Benjamin Sanchez, for petitioner.

     Aaron Stonecash and Catherine Chang, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HOLMES, Judge:   Adelina Van lived in a house, got title to

the house, and then tried to give the house away when she began

to think about her own death.   She did not actually move out of

the house before she died, and the question before us is whether

the value of the house should be included in her estate.
                                 - 2 -

                          FINDINGS OF FACT

     In 1962, Adelina Cheng Van emigrated to the United States

from China as a divorced 41-year-old mother of four.    She

eventually settled in San Mateo, California, with three of her

children--Norma, Robert, and Michael.    From 1965 to 1973 the Vans

lived in a house that they had scraped money together to buy in

Foster City.    But then Van started courting a man named Marcel

Periat, who in June 1973 bought a house for her on Capistrano Way

in San Mateo, very close to his own home.    Periat incurred all

the costs himself and kept title to the property in his own name.

Van moved into the Capistrano house and began living there

expense free.

     Over the years, Van developed an interest in the real-

estate business and became an informal agent and manager.     After

Van’s daughter Norma grew up and married, both she and her

husband, James Hu, relied on Van’s advice in buying real estate

in the San Francisco Bay area.

     In 1988, the Hus asked Van to see if Periat would sell the

Capistrano house to them.    Periat at first seemed interested in

the proposal; but Van then demanded a commission if he sold the

house to the Hus.    Periat began to worry that Van was angling to

bring a palimony claim and instead negotiated a “Mutual Agreement

and Release” with her.    The Agreement required him to sell the

Capistrano house to Van for $250,000, with $170,000 as a
                                - 3 -

downpayment and a secured promissory note to him for the

remaining $80,000.    Van, however, was not using her own money.

The Hus were the source of her funds, both of the downpayment and

of the payments on the note.1   Title passed to Van on August 3,

1989.

     But that title didn’t rest with her for long.    Within hours

of recording the deed with San Mateo County, Van recorded a grant

deed conveying title to the house to herself and two of her

grandchildren--the Hus’ daughters Virginia and Arleen, as joint

tenants.    Without telling her daughter and son-in-law, Van then

had Virginia and Arleen reconvey sole title back to her in 1994.

Then in August 1997 Van created the Adelina Cheng Van Revocable

Trust and deeded the Capistrano house to herself as trustee in

December 1997.    Two years later, she transferred title to the

house from herself as trustee to her daughter Norma and three

granddaughters:    Virginia, Arleen, and Christina Hu.   All of

these transfers were gratuitous.

     Van died on May 1, 2000.    Her son, Michael Van, served as

her estate’s personal representative and filed the estate tax

return.    The return disclosed the existence of the Capistrano

house but did not list the house as an asset of the estate.       The

Commissioner sent the estate a notice of deficiency that included


     1
       The final purchase price of the Capistrano house ended up
being $230,000: Periat forgave two $10,000 payments on the
$80,000 promissory note in April 1994 and February 1995.
                                 - 4 -

the Capistrano house as a taxable asset of Van’s estate.      The

estate filed its petition to contest the inclusion.      We tried the

case in San Francisco, though Michael Van was a New York resident

when he brought the case.

     The Commissioner claims that Van retained possession or

enjoyment of the Capistrano house until she died, even after

title to it began ducking and weaving throughout her extended

family.    He argues that this means the value of the house should

be part of her taxable estate.

     The estate argues that it is really the Hus who owned the

house.    They gave the money to Van under what they claim was an

agreement that they were to be the legal purchasers of the house

even though Van would take title to placate Periat.      The estate

argues that the Hus’ past dealings with Van, in which she served

as their agent for real-estate purchases, support this

characterization.

                                OPINION

I.   Burden of Proof

     We begin with the burden of proof.      A taxpayer normally

bears that burden.     See Rule 142(a).2   However, section 7491(a)

shifts the burden to the Commissioner when a taxpayer introduces



     2
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the date of Adelina Van’s
death, and Rule references are to the Tax Court Rules of Practice
and Procedure.
                                - 5 -

credible evidence regarding the facts of the case, reasonably

cooperates with the IRS, and maintains required records.

Although it is uncommon for the burden to shift to the

Commissioner, the estate has convinced us that it is reasonable

to do so in this case.   The estate clearly flagged the issue in

its return:    It listed the Capistrano house and its fair market

value on “Schedule A--Real Estate” and then deducted the value,

explicitly noting the estate’s belief that Van had no ownership

interest in the house as the Hus had provided the purchase money

and title had passed to Norma Hu and her three daughters before

Van’s death.   The estate also went out of its way to cooperate

with the IRS--it allowed the IRS to interview the Hus in its

counsel’s office; provided the IRS with all the relevant

documents before a Branerton conference was held, see Branerton

Corp. v. Commissioner, 61 T.C. 691 (1974); and even translated

Van’s letters into English for the IRS.
                                  - 6 -

II.   Inclusion of the Capistrano House in the Estate

      Section 20363 includes in a decedent’s gross estate the

value of all property that a decedent gives away but which she

keeps in her possession or in which she continues to enjoy an

interest until her death.      The paradigm is a sale with a retained

life estate, but the Code states the rule more generally.

      A.     California Law

      The estate begins by correctly noting that we must look to

California law to decide what interests Van held at death:

“State law creates legal interests and rights.”      Morgan v.

Commissioner, 309 U.S. 78, 80 (1940).      If, therefore, California

law gave Van a legal or beneficial interest in the Capistrano

house at some point during her life, it might be included in her

estate under the Code.

      The estate also argues that under California law, Van never

had an interest in the Capistrano house because the Hus--and here



      3
          SEC. 2036.   TRANSFERS WITH RETAINED LIFE ESTATE.

           (a) General Rule.--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 without reference
      to his death or for any period which does not in fact end
      before his death--

                  (1) the possession or enjoyment of, or the right
             to the income from, the property * * *.
                                - 7 -

we refer to Norma Hu and her husband--themselves were the real

owners and Van had taken title only as their agent.    To back up

this claim, the estate pointed to other real-estate transactions

where Van served as the Hus’ agent.     But we find that this deal

was different:   Van took legal title to the Capistrano house in

her own name and actually lived there.    In all the other deals

where Van helped them, the Hus themselves took legal title and

rented the houses to unrelated tenants.    They also gave Van a

written power of attorney to act on their behalf in managing the

properties.   Although we find it was the Hus who gave Van the

money she used for the down payment on that house, and then gave

her still more to make the payments on the note, this in itself

doesn’t prove Van was merely their agent.

     The Hus’ reliance on California law actually undermines the

estate’s position.   California Evidence Code Section 662 states

that “[t]he owner of the legal title to property is presumed to

be the owner of the full beneficial title.    This presumption may

be rebutted only by clear and convincing proof.”    This statute

puts a heavy burden on the estate to prove that Van did not own

the house.    The Hus did testify that they put the house in Van’s

name because they were worried that creditors of Mr. Hu’s

Taiwanese business might someday take it.    The fact, however,

that all the Hus’ other California properties were titled in

their own names reduces our willingness to believe this part of
                                - 8 -

their testimony.    The Hus have not convinced us that Van was

acting merely as their agent in acquiring the Capistrano house.

She did not, after all, just hold title in her name--she lived

there.    We therefore find that Van did acquire a beneficial

interest in the house during her lifetime.

     B.     Resulting Trust

     As a fallback position, the estate urges us to find a

resulting trust.    Its argument is that because the Hus supplied

the purchase money, the Hus themselves had a beneficial interest

in the house because California law imposes a resulting trust for

their benefit against the interest of the titleholder.    This

concept of a resulting trust does exist in California law.      As a

state court of appeals described the doctrine in Lloyds Bank Cal.

v. Wells Fargo Bank, 232 Cal. Rptr. 339 (Cal. Ct. App. 1986):

     A resulting trust arises by operation of law from a
     transfer of property under circumstances showing that
     the transferee was not intended to take the beneficial
     interest[;] * * * [it] arises in favor of the payor of
     the purchase price of the property where the purchase
     price, or a part thereof, is paid by one person and the
     title is taken in the name of another[;] * * * it is
     the natural presumption in such a case that it was
     their intention that the ostensible purchaser should
     acquire and hold the property for the one with whose
     means it was acquired.

Id. at 1042-43 (quotation marks omitted).

     The first problem here is that Van not only “intended to

take the beneficial interest” in the Capistrano home, she

actually did take a beneficial interest--after all, she was
                                - 9 -

living there until she died.    And even if the Hus’ invocation of

the doctrine would otherwise be persuasive, their relationship to

Van would undermine it:

      There are, however, exceptions, to this [resulting
      trust] doctrine. It is well settled that one exception
      to the rule is found in transactions between parent and
      child. * * * These transactions are presumed to be in
      the nature of gifts, advancements or bounties. In
      short, the existence of the relationship of parent and
      child is a circumstance which prima facie establishes
      the presumption of an advancement and thereby rebuts
      the presumption of a resulting trust. * * *

Id.

      We can’t presume an agency here because the parent-child

relationship leads us to infer that the Hus’ purchase money was a

gift to Van that resulted in her taking at least a beneficial

interest in the Capistrano house.    And the uniqueness of Van’s

treatment of the Capistrano house compared to the Hus’ other

properties, and the implausibility of the Hus’ claimed motivation

for not putting themselves on the title, lead us to find that

neither they nor Van intended merely that she take title to the

house on their behalf.    See also Altramano v. Swan, 128 P.2d 353,

356 (Cal. 1942) (transfer between parent and child is gift unless

manifest intent otherwise).    Because the estate has not

sufficiently rebutted the presumption of a gift, we hold that no

resulting trust was created.
                               - 10 -

      C.    Possession or Enjoyment

      We do think that Van wanted to leave the house to her

daughter’s family in some way.    But having found that Van had a

beneficial interest in the house, our next task is to see if her

divestment of title to the house acted to remove the value from

her estate.    Even where a decedent has transferred property

before death, the value of such transfers can be included in the

estate if she kept some sort of continuing interest in the

property.    Sec. 20.2036-1, Estate Tax Regs.   The next question is

therefore whether Van retained sufficient “possession or

enjoyment” of the Capistrano house until her death so as to

require that the house be included in her estate.

      We have previously considered what “possession or enjoyment”

is.   For example, in Estate of Rapelje v. Commissioner, 73 T.C.

82, 86 (1979), a case involving a similar situation where the

decedent transferred his personal residence to his two daughters

but continued living there, we held that:

      Possession or enjoyment of gifted property is retained
      when there is an express or implied understanding to
      that effect among the parties at the time of transfer.
      * * * The burden is on the petitioner to disprove the
      existence of any implied agreement or understanding,
      and that burden is particularly onerous when
      intrafamily arrangements are involved. * * *

Because the decedent in Rapelje maintained exclusive occupancy of

the residence until his death and did not pay rent, even absent

an express agreement we found that possession and enjoyment were
                              - 11 -

present because all that had happened in the relationship between

the parties after the transfer was a change in title.

     There is no dispute that Van lived in the Capistrano house

from 1973 until her death in 2000; during that time she never

paid any rent, either to Periat or to the Hus.   We have found on

numerous occasions that the type of possession or enjoyment Van

had was sufficient to include the value of the residence in the

decedent’s estate.   See, e.g., Estate of Disbrow v. Commissioner,

T.C. Memo. 2006-34 (implied agreement for possession of

residence where decedent made irregular rent payments for less

than amount stated in lease agreement); Estate of Trotter v.

Commissioner, T.C. Memo. 2001-250 (continued occupation of

condominium after transfer of title to donee and no payment of

rent caused inclusion of residence in estate).

     The estate’s response is that possession of legal title

should be the controlling factor.   The Hus’ daughters shared

title with their mother when Van passed away, so they argue the

estate (quite possibly divided with Van’s other children) should

not be forced to include the value of the house in calculating

the tax due.   We must disagree.   As in Commissioner v. Estate of

Church, 335 U.S. 632, 644 (1949), the “passage of the mere

technical legal title to a trustee is not necessarily crucial in

determining whether and when a gift becomes ‘complete’ for estate

tax purposes.”   Although Van had dispossessed herself of legal
                                 - 12 -

title to the Capistrano property, she continued to live there--a

key indicator of the operative “possession or enjoyment” element.

To avoid the reach of section 2036, a transfer must be made so

that the decedent is “left with no present legal title in the

property, no possible reversionary interest in that title, and no

right to possess or to enjoy the property then or thereafter.”

Id. at 645.   The facts here compel us to find that the

Commissioner correctly included the Capistrano house in Van’s

estate.   We express no opinion on how this might or should affect

the ultimate disposition of the house or the remainder of the

estate to Van’s legatees.

                               Conclusion

     We conclude that Van had a beneficial interest in the

Capistrano house and displayed a sufficient degree of “possession

or enjoyment” under section 2036, for it to be included in her

taxable estate.   Therefore,


                                      Decision will be entered

                                 for respondent.
