                       114 T.C. No. 9



                 UNITED STATES TAX COURT



        ESTATE OF CHARLES E. REICHARDT, DECEASED,
WILLIAM D. REICHARDT, INDEPENDENT EXECUTOR, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



 Docket No. 1224-98.                       Filed March 1, 2000.



      Decedent (D) had two children, C and W. On June
 17, 1993, D formed a revocable family trust (the trust)
 and a family limited partnership (the partnership).
 The trust was the general partner of the partnership.
 D, C, and W were named cotrustees, but only D performed
 any functions as trustee.

      D transferred his residence and all of his other
 property (except for his car, personal property, and
 some cash) to the partnership through the trust. D’s
 transfer was not a bona fide sale for full and adequate
 consideration. On Oct. 22, 1993, D gave C and W each a
 30.4-percent interest in the limited partnership. D
 retained possession and enjoyment of and the right to
 income from the property he transferred to the
 partnership until he died on Aug. 21, 1994.
                               - 2 -


          Held: The fair market value at D’s date of death
     of assets D transferred to the partnership is included
     in D’s gross estate. See sec. 2036(a), I.R.C.

     Rex B. Cruse, Jr., and S. Jeffrey Gately, for petitioner.

     Deborah H. Delgado, T. Richard Sealy III, and James G.

MacDonald, for respondent.


     COLVIN, Judge:   Respondent determined that petitioner is

liable for a deficiency in gift tax of $161,494 for gifts made by

decedent in 1993 and a deficiency in estate tax of $358,771.

After concessions,1 the issue for decision is whether assets that

decedent transferred to the partnership are included in his

gross estate under section 2036(a).    We hold that they are, and

that the fair market value of those assets was $1,634,654 when

decedent died.2




     1
        Respondent no longer contends that (1) the partnership is
a sham or that (2) the duty of consistency or sec. 2703(a)(2)
applies here. Petitioner's motion to shift the burden of proof
regarding those theories is moot.
     2
        In light of this holding, we need not decide whether, as
respondent contends, (1) the assets transferred to the
partnership are included in decedent's gross estate under sec.
2038, (2) any “applicable restriction” in the partnership
agreement is disregarded under sec. 2704(b), (3) lapsed
liquidation rights are included in decedent’s gross estate under
sec. 2704(a), or (4) decedent did not make another gift to his
children in 1994.
                                 - 3 -

     Unless stated otherwise, section references are to the

Internal Revenue Code.     Rule references are to the Tax Court

Rules of Practice and Procedure.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Decedent and His Family

     Decedent was married to Jessie Glenn Reichardt (Mrs.

Reichardt).    They had two children, Carolyn A. Reichardt Foose

(Carolyn Foose) and William D. Reichardt (William Reichardt).

Mrs. Reichardt died at age 77 on December 6, 1991.     Decedent

lived at 214 Encino, Alamo Heights, San Antonio, Texas (214

Encino), when he died on August 21, 1994.

B.   Mrs. Reichardt

     1.     Mrs. Reichardt's Inheritance

     Mrs. Reichardt graduated from Rice University in Houston,

Texas.    Her father died in 1971.   Mrs. Reichardt handled her own

business affairs.     Mrs. Reichardt inherited from her father an

undivided one-half interest in several parcels of real property

in Kleberg and Nueces Counties, Texas, and various securities.

Mrs. Reichardt's sister, Ruth Welch (Welch), inherited the other

one-half interest in the property.

     Mrs. Reichardt's uncle, Jessie Dennett, died in 1973.     Mrs.

Reichardt inherited from Jessie Dennett a one-half undivided

interest in real property in Kleberg County, Texas, and a one-
                                 - 4 -

third undivided interest in real property in San Patricio and

Cameron Counties, Texas.     Welch inherited the other one-half

interest in the Kleberg County property.     Welch and Mrs.

Reichardt's cousin, Ella Gordan, also each inherited one-third

interests in the San Patricio and Cameron Counties property.      The

Cameron and San Patricio Counties property remained in the name

of the Estate of Jessie Dennett through the time of trial in this

case.     Mrs. Reichardt and Welch managed Mrs. Reichardt's separate

property.

     Mrs. Reichardt and her children knew that Mr. Reichardt was

involved with another woman (not identified in the record).       Mrs.

Reichardt considered filing for divorce (at a time not specified

in the record) but never did so.

     When she died, Mrs. Reichardt's separate property included

undivided interests in 22 parcels of real property in four Texas

counties and some securities.     Her community property included

four checking accounts, a note receivable from Bruce Graham

(Graham) dated November 23, 1987 (the Graham note), stock and

bonds, two cars, the residence at 214 Encino, and three rental

properties on Routt Street (the Routt rental property) in San

Antonio.

     2.      Mrs. Reichardt's Will

     In her will, Mrs. Reichardt left decedent all of her

community property and a life interest in her separate property.
                                - 5 -

Mrs. Reichardt authorized decedent to sell, lease, or otherwise

dispose of any of the property subject to the life interest on

terms that he deemed advisable, without requiring him to account

for or replace any of it.    Her will provided that decedent would

lose his life interest in her separate property if he remarried.

Mrs. Reichardt left the remainder interest to her children and

appointed decedent and their children as joint independent

coexecutors.

     3.     Probate of Mrs. Reichardt’s Estate

     On May 17, 1993, decedent signed and filed an inventory in

the probate court for his wife's estate without consulting his

children.    Decedent reported that Mrs. Reichardt's estate

included $744,597.50 in separate property and $612,648.50 in

community property (a total of $1,357,246).      Decedent mistakenly

reported that her estate included no real estate in Nueces

County, Texas, and that some securities were both community and

separate property.

     In November 1993, Thomas L. Goade (Goade), a real estate

appraiser retained by Mrs. Reichardt’s estate, concluded that, as

of September 15, 1993, her estate had $411,178.50 in community

assets and $775,986.67 in separate assets (a total of

$1,187,165.17).    On November 30, 1993, decedent and his children,

as coexecutors, filed an amended inventory using the asset values

provided by Goade.
                              - 6 -

C.   Decedent’s Decision To Form a Family Limited Partnership

      William Reichardt met with John R. Hannah (Hannah), a

certified public accountant, and asked about post mortem estate

planning for his mother’s estate.   Hannah recommended that the

children and decedent form a family limited partnership.

Decedent, who had just been diagnosed with terminal cancer, and

William Reichardt met with Hannah on June 5, 1993, to discuss

Mrs. Reichardt's estate.

     On June 17, 1993, decedent signed his will and a durable

power of attorney and formed a revocable living trust called the

Reichardt Family Trust (the trust) and a family limited

partnership called Reichardt Partners, Ltd. (the partnership).

Decedent appointed himself and his children as cotrustees and

authorized each trustee to act on behalf of the trust.    The trust

instrument provided that decedent was entitled to receive the net

income of the trust, which was to be paid at least annually, and

that he was entitled to use the corpus of the trust for his

support, maintenance, health, and general welfare.   The trust

instrument provided that the trust property and accumulated

income would be divided into as many equal shares as the number

of his children when decedent died.

     The trust was the partnership's only general partner.

     On June 21, 1993, the Texas secretary of state approved and

recorded the certificate of the partnership.
                               - 7 -

D.   Transfer of Assets to the Trust and Partnership

     Decedent transferred all of his property (except for his

car, personal effects, and a small amount of cash3) to the

partnership.   Decedent signed deeds individually and on behalf of

Mrs. Reichardt’s estate transferring his and the estate’s

interest in 214 Encino, the Routt rental property, and the Nueces

and Kleberg Counties property to the trust.   He also signed deeds

as trustee transferring those interests in that property to the

partnership.   Decedent deposited $20,540 of partnership funds in

his personal checking accounts in July and August 1993.    Decedent

transferred to the trust, which then transferred to the

partnership, (1) investment accounts at Rauscher Pierce Refsnes,

Inc. (Rauscher Pierce), on June 29, 1993, and Smith Barney

Shearson, Inc. (Smith Barney), on August 16, 1993, (2) the Graham

note on August 12, 1993, and (3) $32,871.78 in cash on August 13,

1993.4   Before and after the transfers, decedent’s children let

him control the two investment accounts, the note receivable, and

the cash.

     Decedent individually, and with William Reichardt and

Carolyn Foose as coexecutors of Mrs. Reichardt's estate,

transferred the Graham note which had been Mrs. Reichardt’s and



     3
        Decedent had $2,389 in his personal checking account when
he died.
     4
        Decedent transferred the cash directly to the
partnership.
                               - 8 -

decedent’s community property from Mrs. Reichardt's estate to the

trust.   On August 12, 1993, decedent, as trustee, conveyed the

Graham note from the trust to the partnership.

     On August 13, 1993, decedent transferred $32,871.78 from his

two personal accounts at Frost National Bank in San Antonio to a

new partnership account at that bank.   Decedent received at least

$20,540 of the $32,871.78 from rental income from property he had

transferred to the partnership.

     The Estate of Jessie Dennett made no payments to Mrs.

Reichardt’s estate or to decedent from rent receipts or property

sales distributions in 1993 and 1994 from any of the real

property in Cameron County.   The Estate of Jessie Dennett paid

$30,000 to Mrs. Reichardt's estate on June 19, 1995, as its share

of the proceeds from the sale of some real property.   This amount

was deposited in the partnership’s bank account.

     Decedent lived at 214 Encino before and after he transferred

it to the trust and to the partnership.   He paid no rent to the

trust or the partnership to use that residence.

E.   Decedent's Gift of Limited Partnership Interests to His
     Children

     On October 22, 1993, decedent gave each of his children a

30.4-percent interest in the partnership.5


     5
        Petitioner contends that decedent’s children received
assignee interests. We need not decide whether they received
limited partnership interests or assignee interests because,
                                                   (continued...)
                                - 9 -

F.   Management of the Partnership Assets

     Decedent controlled and managed, or allowed the coowners to

control and manage, the partnership assets in the same manner

both before and after he transferred them to the partnership.    He

used the same brokers and managers before and after he

transferred the property.   No one except decedent signed

partnership checks and documents.   Welch managed the Kleberg

County property before and after October 22, 1993, and August 21,

1994.    The executors for the Estate of Jessie Dennett managed the

Cameron County property before and after October 22, 1993, and

August 21, 1994.   Decedent’s relationship to the partnership

assets did not change when he conveyed them to the trust and

partnership.

     Hannah’s firm made adjusting entries in the partnership’s

accounting records in an attempt to classify items of income and

expense between decedent and the partnership.   The difference

between cash on hand in the partnership account and the amount in

the general journal was $8,116 in 1993 and $13,507 in 1994.

Hannah’s firm assumed that these were the amounts of decedent’s

personal expenses that the partnership paid in those years.




     5
      (...continued)
under sec. 2036(a), decedent’s gross estate includes the assets
that he conveyed to the trust and partnership.
                              - 10 -

G.   Tax Returns

     The partnership filed income tax returns (Forms 1065, U.S.

Partnership Return of Income) for 1993, 1994, 1995, 1996, and

1997.   The trust filed income tax returns (Form 1041, U.S.

Fiduciary Income Tax Return) for 1994, 1995, 1996, and 1997.

     In March 1994, decedent and his children, as executors,

filed a Federal estate tax return for Mrs. Reichardt's estate in

which they reported a gross estate of $1,092,290.   Hannah

prepared the return.

     Decedent filed a Federal gift tax return for 1993 on April

15, 1994.   In it, he reported that he had given a 30.4-percent

interest in the partnership to each of his two children and that

each gift had a value of $310,000 as of October 22, 1993.

     After decedent died, petitioner obtained an appraisal of

decedent’s estate and the 1993 gifts.   On Schedule F of the

estate tax return, petitioner reported that, when decedent died,

his gross estate included a 36.46-percent limited partnership

interest in the partnership which had a fair market value of

$346,000, and a 1-percent general partnership interest in the

partnership which had a fair market value of $13,000.

                              OPINION

A.   Section 2036(a)

     A decedent’s gross estate includes the value of property

interests transferred by the decedent during his or her lifetime
                                - 11 -

(other than a bona fide sale for full and adequate consideration)

if the decedent retained for life the possession or enjoyment of

the property, or the right to the income from the property.    See

sec. 2036(a).6   Respondent determined and contends that assets

that decedent conveyed to the partnership are includable in his

estate under section 2036(a).    Petitioner contends that section

2036(a) does not apply because decedent did not retain enjoyment

(i.e., economic benefits) of the transferred property and that

the transfer was for full and adequate consideration.

B.   Whether Decedent's Gross Estate Includes Assets Held by the
     Partnership When Decedent Died

     We must decide whether section 2036(a) applies to the

following property:   (1) Decedent’s residence at 214 Encino and

the Routt rental property; (2) a one-half interest in property in


     6
         Sec. 2036 provides as follows:

     SEC. 2036(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, or

           (2) the right, either alone or in conjunction
           with any person, to designate the persons who
           shall possess or enjoy the property or the
           income therefrom.
                             - 12 -

Kleberg and Nueces Counties; (3) a one-third interest in the

Cameron and San Patricio property; (4) investment accounts at

Rauscher Pierce and Smith Barney Shearson; (5) the Graham note;

and (6) cash; i.e., all of the property alleged to have been in

the partnership when decedent died (the transferred property).

     1.   Whether Decedent Retained Possession, Enjoyment, or the
          Right to the Income From the Transferred Property
          During His Lifetime

     For purposes of section 2036(a), a transferor retains the

enjoyment of property if there is an express or implied agreement

at the time of the transfer that the transferor will retain the

present economic benefits of the property, even if the retained

right is not legally enforceable.   See Guynn v. United States,

437 F.2d 1148, 1150 (4th Cir. 1971); Estate of McNichol v.

Commissioner, 265 F.2d 667, 671 (3d Cir. 1959), affg. 29 T.C.

1179 (1958); Estate of Spruill v. Commissioner, 88 T.C. 1197,

1225 (1987); Estate of Rapelje v. Commissioner, 73 T.C. 82, 86

(1979); Estate of Honigman v. Commissioner, 66 T.C. 1080, 1082

(1976); Estate of Gilman v. Commissioner, 65 T.C. 296, 306-307

(1975), affd. 547 F.2d 32 (2d Cir. 1976); sec. 20.2036-1(a),

Estate Tax Regs. (last sentence).

     In deciding whether there was an implied agreement, we

consider all of the facts and circumstances surrounding the

transfer and subsequent use of the property.   See Estate of

Spruill v. Commissioner, supra; Estate of Rapelje v.
                                - 13 -

Commissioner, supra at 86-87.    Petitioner bears the burden (which

is especially onerous for transactions involving family members)

of proving that an implied agreement or understanding between

decedent and his children did not exist when he transferred the

property at issue to the trust and to the partnership.    See

Estate of Skinner v. United States, 316 F.2d 517, 520 (3d Cir.

1963); Estate of Rapelje v. Commissioner, supra at 86; Estate of

Hendry v. Commissioner, 62 T.C. 861, 872 (1974).

     Petitioner contends that decedent and his children did not

have an implied agreement that decedent could continue to use the

property after he conveyed it to the partnership.   Petitioner

contends that the partnership was formed (a) to curtail

decedent’s enjoyment of the property transferred to the limited

partnership, (b) to prevent him from taking imprudent actions

with regard to the property and to settle family disharmony

regarding the assets, and (c) to give the children more control

over the assets.

          a.    Whether Decedent Curtailed His Enjoyment of the
                Transferred Property

     Decedent did not curtail his enjoyment of the transferred

property after he formed the partnership.   Nothing changed except

legal title.   Decedent managed the trust which managed the

partnership.   Decedent was the only trustee to sign the articles

of limited partnership, the deeds, the transfer of lien, and any

document which could be executed by one trustee on behalf of the
                              - 14 -

trust.   Decedent was the only trustee to open brokerage accounts

or sign partnership checks.   He did not open any accounts for the

trust.

     Decedent commingled partnership and personal funds.    He

deposited some partnership income in his personal account.       He

used the partnership’s checking account as his personal account.

He lived at 214 Encino without paying rent before or after he

transferred it to the trust and to the partnership.    Decedent’s

relationship to the assets at issue remained the same after he

transferred them.   If a decedent's relationship to assets remains

the same after a transfer as it was before a transfer, the value

of the assets may be included in the decedent's gross estate.

See sec. 2036(a)(1); Guynn v. United States, supra; Estate of

Hendry v. Commissioner, supra at 874; Estate of Schauerhamer v.

Commissioner, T.C. Memo. 1997-242.     Here, nothing changed after

decedent transferred his interests in the property to the trust

and the partnership, except legal title.

     Petitioner contends that decedent had no relationship to any

of the real property except for 214 Encino and the Routt rental

property because Welch and the Estate of Jessie Dennett managed

those properties.   We disagree.   Section 2036 applies not only if

a transferor retains possession or enjoyment of property, but

also if a transferor retains the right to income from the

property.   See sec. 2036(a)(1).   We believe that decedent and his
                              - 15 -

children had an implied agreement that decedent could retain for

his lifetime the right to the income from all of the real

property that the partnership had when decedent died.   Thus,

decedent did not curtail his enjoyment of the transferred

property after he transferred it to the trust and partnership.

     Decedent’s estate tax return states that when decedent died

he had personal property, a car, and $2,389 cash, and he was owed

a $429 Federal income tax refund and a $733 medical refund.

Decedent apparently conveyed nearly all of his assets to the

trust and partnership.7   This suggests that decedent had an

implied agreement with his children that he could continue to use

those assets.   Cf. Estate of Paxton v. Commissioner, 86 T.C. 785,

810 (1986).

          b.    Whether Decedent Transferred Property to the Trust
                and Partnership To Prevent Decedent From Treating
                the Property Imprudently, To Settle Family
                Disharmony, and To Give Children Control Over
                Assets

     Petitioner contends that decedent formed the partnership to

prevent him from treating the transferred property imprudently.

We disagree because decedent controlled the partnership, and he

had the power to act alone on behalf of the trust which was the



     7
        Based on the estate tax return for decedent’s estate and
Hannah’s records, respondent alleges that decedent gave about 98
percent of his property to the partnership. Petitioner’s only
response was that respondent’s allegation is not based on the
record and is “unsupported by calculations.” Respondent’s 98-
percent estimate appears to be reasonable.
                                - 16 -

partnership’s sole general partner.      He alone (1) executed the

articles of limited partnership, the deeds, and the transfer of

lien; (2) opened the brokerage accounts; and (3) signed all of

the partnership checks.

     Petitioner emphasizes that decedent’s children were

concerned that he would give Mrs. Reichardt’s property to his

lady friend.     Despite that, Mrs. Reichardt’s will gave decedent

the power to consume all of her separate property in which she

gave him a life interest.     Mrs. Reichardt was sophisticated and

capable.   We do not think she would have given him such broad

power if she had the concern that petitioner alleges.      In

addition, decedent did not do what petitioner says his children

suspected he would do.    The facts suggest that this argument of

petitioner’s is, at best, overstated.

     Petitioner also alleges that decedent formed the trust and

partnership to give his children control over the assets while he

was living.     The facts suggest otherwise.   Decedent’s children,

as cotrustees, could have taken, but did not take, actions

related to the trust or exercise control over the assets while

decedent lived.

           c.     Fiduciary Duties

     Petitioner contends that decedent's fiduciary duties as a

general partner and trustee precluded him from retaining

enjoyment of the assets.     We disagree.   Decedent’s fiduciary
                                - 17 -

duties did not deter him from continuing to possess and enjoy the

house in which he lived or the other assets he conveyed to the

partnership.   Decedent's children, as cotrustees, did nothing to

preclude him from doing so.   This suggests that decedent and his

children had an implied agreement to allow decedent to continue

to enjoy partnership property throughout his life.

     Petitioner points out that decedent’s children could have

revoked his management powers.    However, they did not.    This

suggests that they and decedent had an implied agreement that he

could continue to possess, enjoy, and retain the right to income

from all of the property that he conveyed.

     Decedent used at least $8,116 of partnership funds in 1993

for personal purposes and $13,507 in 1994.    Petitioner contends

that, at the end of 1993 (before decedent died) and 1994 (after

decedent died), Hannah’s firm prepared yearend adjusting entries

which reclassified items of income and expense as relating to

decedent and the partnership.    Petitioner contends that the

adjusting entries show there was no implied agreement for

decedent to continue to enjoy partnership property.

     We disagree.   The 1993 yearend and 1994 post mortem

adjusting entries made by Hannah’s firm were a belated attempt to

undo decedent’s commingling of partnership and personal accounts.

There is no evidence that the partnership or decedent transferred
                              - 18 -

any funds to the other as a result of the adjusting entries.8

After-the-fact paperwork by decedent’s C.P.A. does not refute

that decedent and his children had agreed that decedent could

continue to use and control the property during his life.

          d.     Conclusion

     We conclude that decedent and his children had an implied

agreement that decedent could continue to possess and enjoy the

assets and retain the right to the income from the assets that he

conveyed to the partnership during his lifetime.

     2.   Whether Decedent Transferred Property to the
          Partnership in a Bona Fide Sale for Full and Adequate
          Consideration

     Section 2036(a) does not apply if the transfer of property

was part of a bona fide sale in exchange for full and adequate

consideration.   A bona fide sale is an arm’s-length business

transaction between a willing buyer and a willing seller.   See

Wheeler v. United States, 77 AFTR 2d 96-1405, 96-1411, 96-1 USTC

par. 60,226 (W.D. Tex. 1996) (value of homestead is included in

decedent’s gross estate under section 2036(a) in part because

there was no bona fide sale among family members).


     8
        Petitioner did not establish the accuracy of the records
that Hannah’s firm used to prepare the adjusting entries. The
parties stipulated that the adjusting entries summarized other
underlying records but not that the underlying records are
accurate or complete. Petitioner does not identify all of the
records on which the summary was based. One of the underlying
records that petitioner produced is another summary that is
extremely vague, e.g., $8,116 “Various C.E. Reichardt”.
Petitioner’s reliance on the adjusting entries is misplaced.
                                - 19 -

     Petitioner contends that decedent received full and adequate

consideration because he received partnership interests, family

disputes were settled, and his children became involved in family

assets.   We disagree.   Decedent’s children gave nothing to

decedent or the partnership when he transferred property to the

trust and the partnership, and they did not involve themselves in

the partnership.

     Petitioner contends that decedent’s children gave

consideration to the partnership in the form of their remainder

interests.    We disagree for reasons stated in paragraph B-4,

below.

     Petitioner contends that decedent sold the transferred

property to the partnership in exchange for partnership interests

as consideration.    We disagree.   Petitioner did not sell the

transferred property to the partnership.     See Wheeler v. United

States, supra.

     3.      Comparison of This Case to Schauerhamer v. Commissioner

     Petitioner contends that this case is distinguishable from

Schauerhamer v. Commissioner, T.C. Memo. 1997-242.     We held in

Schauerhamer that property transferred to three family limited

partnerships was included in the transferor’s estate under

section 2036(a).    This case is similar to Schauerhamer in that,

in both cases, the decedents and their children had implied

agreements for the decedents to use property that they had
                               - 20 -

transferred to family limited partnerships established for the

benefit of family members.    In Schauerhamer, the children

testified that they intended the decedent’s relationship with the

transferred assets to remain the same after the transfer.     Here,

the objective evidence (described above) shows that there was an

implied agreement that the decedent could continue to enjoy the

property, the children did not deny that there was such an

agreement, and we have so found.    The decedents in both

Schauerhamer and the instant case commingled funds.    Petitioner

cites no significant distinction between Schauerhamer v.

Commissioner, supra, and this case.

     4.     Whether Interests in the Cameron, San Patricio, Nueces,
            and Kleberg Counties Property Held by the Partnership
            Are Not Subject to Section 2036 Because Decedent Never
            Owned Those Interests

     Petitioner contends that Mrs. Reichardt’s interests in the

Cameron, San Patricio, Nueces, and Kleberg Counties property are

not subject to section 2036 because they passed directly from her

estate to the partnership and decedent never owned any interest

in them.    We disagree.

     The interests in the Cameron, San Patricio, Nueces, and

Kleberg Counties property were Mrs. Reichardt’s separate

property.    Under her will, a life interest in that property

vested in decedent under Texas law when Mrs. Reichardt died.    See

Tex. Prob. Code Ann. sec. 37 (West Supp. 1999).    Decedent’s life

interest included the power to consume all of Mrs. Reichardt’s
                                - 21 -

interest in the property.   There are no deeds transferring the

Cameron and San Patricio Counties property to the trust and

partnership.   Thus, the only way interests in those properties

could reach the partnership is for decedent to have used the

power to consume to convey all of Mrs. Reichardt’s interest in

those properties to the partnership.

     Decedent transferred his interest in the Nueces and Kleberg

Counties property to the trust and partnership when he signed

deeds on behalf of himself as an individual.    Petitioner contends

that the deeds establish that Mrs. Reichardt’s interest in the

Nueces and Kleberg Counties property passed directly from Mrs.

Reichardt’s estate to the trust and therefore is not included in

decedent’s estate under section 2036.    We disagree.   Mrs.

Reichardt’s interest in the Nueces and Kleberg Counties property

vested in decedent as provided under Texas law.    See Tex. Prob.

Code Ann. sec. 37 (West Supp. 1999).

     Petitioner contends that decedent’s children gave their

remainder interests in Mrs. Reichardt’s separate property to the

partnership, and thus decedent did not own those interests.    We

disagree.   Decedent’s children testified vaguely and

unconvincingly about whether they contributed their remainder

interests to the partnership.    There is no documentary evidence

that they did so.   We believe that they could not have done so

because decedent consumed all of Mrs. Reichardt’s separate
                              - 22 -

property, leaving no remainder for the children.    See Hudspeth v.

Hudspeth, 756 S.W.2d 29, 31 (Tex. App. 1988) (life tenant may

destroy any contingent interests held by remaindermen if testator

expressly gives life tenant power to completely dispose of

corpus); Calvert v. Thompson, 339 S.W.2d 685 (Tex. App. 1960)

(same).   No document shows that decedent transferred only a life

interest in any asset to the trust or partnership.

     We conclude that decedent owned and gave to the trust and

partnership during his lifetime all of the interests in the

Cameron, San Patricio, Nueces, and Kleberg Counties property that

had belonged to Mrs. Reichardt when she died.9    Thus, those

property interests are subject to section 2036.

     5.   Conclusion

     We conclude that section 2036(a) applies to all of the

property that decedent transferred to the partnership.

C.   Amount Included in Decedent’s Estate Under Section 2036(a)

     To decide the amount included in decedent’s estate under

section 2036(a), we must decide the value on the date of

decedent’s death of the property that decedent transferred to the

partnership.   James R. Parks (Parks), petitioner’s expert who



     9
        Decedent’s life interest in the Cameron and San Patricio
Counties property included the power to convey that property to
the partnership. Decedent did so even though that property
remained in the name of the Estate of Jessie Dennett. See Logan
v. Logan, 156 S.W.2d 507, 512 (Tex. 1941); King v. Evans, 791
S.W.2d 531 (Tex. App. 1990).
                               - 23 -

adopted Goade’s estimates for real property, and Francis X. Burns

(Burns), respondent’s expert, disagree about the value of some of

the partnership assets when decedent died.

     The following summarizes the parties’ positions and our

holding about the values of the partnership assets on August 21,

1994, before discounts.

                           Estimate by
  Assets            Goade & Parks        Burns        Conclusion
Bexar County land     $378,900          $421,000       $378,900
Kleberg County land    212,017           235,575        212,017
Nueces County land      78,750            87,500         78,750
Cameron County land     42,239                 0         42,239
San Patricio
   County land1          -0-                --             -0-
Rauscher Pierce        672,345           672,345         672,345
                                                       2
Smith Barney           119,902           119,465         119,465
Note receivable        140,594           140,594         140,594
Cash                    26,072            26,072          26,072
Liabilities            (35,728)          (35,728)        (35,728)
   Totals            1,635,091         1,666,823      1,634,654
     1
       Goade estimated that the San Patricio County property had
no value because most of it was under water most of the year.
Burns did not include the San Patricio County property in his
report.
     2
       Burns listed the value of each security in the Smith
Barney portfolio. In his report, Parks stated a total for Smith
Barney, but no information on specific securities because he
found them to be unavailable. We accept Burns’ estimate.

     Parks used the estimates of Goade, a professional real

estate appraiser, as the values for the real property.   Goade

applied a 10-percent fractional interest discount.   Burns

concluded that no fractional interest discount should be applied

to the real property values.   Goade is a qualified real estate
                              - 24 -

appraiser; Burns admitted in his testimony that he is not.   We

accept Goade’s appraisal.

     We conclude that the value of the assets (less liabilities)

that decedent transferred to the partnership through the trust is

$1,634,654.   This value is included in decedent’s estate under

section 2036(a).

     To reflect the foregoing and concessions of the parties,


                                         Decision will be entered

                                    under Rule 155.
