The Fifth Circuit Court of Appeals ruled that, where an elderly woman’s agent transferred her assets into a family limited partnership (FLP) shortly after her health declined, the transfer was not motivated by a significant nontax purpose and the assets should be included in her gross estate. The court rejected the estate’s argument that the transfer was motivated by nontax purposes, including financial institutions’ failure to honor the agent’s authority or a desire to protect the decedent’s assets from fraud and elder abuse. Estate of Fields v. Comm’r of Internal Revenue, No. 25-60403 (5th Cir. June 8, 2026).
In 2010, Anne Fields nominated her great-nephew, Bryan Milner, as executor of her estate and signed a power of attorney (POA) appointing him as her agent. Anne was diagnosed with Alzheimer’s disease in 2011. In 2012, Bryan began managing most of her finances due to her declining condition. In May 2016, Anne’s health declined substantially, and Bryan met with an estate planning attorney to discuss her estate. The attorney recommended that Bryan form a limited partnership to hold Anne’s assets, with Anne named as a limited partner holding a 99.9941 percent interest and a limited liability company named as the general partner holding a .0059 percent interest. Bryan transferred Anne’s assets into a limited partnership as recommended. In June 2016, Anne passed away.
Anne’s estate was large, and Bryan hired an accountant to help prepare the estate tax return. On the estate tax return, the estate included Anne’s limited partnership interest as part of the gross estate, which was valued at $10,877,000. The estate tax return did not include the value of the assets transferred into the limited partnership, which were valued at $17 million. The estate calculated its final tax liability at $4,617,800.
Following an audit, the Internal Revenue Service (IRS) issued a notice of deficiency, determining that Anne’s gross estate included more than the value of the limited partnership interest. The IRS also assessed a 20 percent underpayment penalty. The estate sought relief in the tax court, but the court agreed with the IRS’s determination of a $1,828,594 tax deficiency and a $270,417 penalty. The estate appealed.
The Fifth Circuit Court of Appeals held that the value of Anne’s estate depended on the proper application of I.R.C. § 2036(a). Under § 2036(a), the gross estate includes the value of property that a decedent transferred before their death, where the decedent retained an interest in the property that was relinquished only at death and the transfer was not a bona fide sale for adequate and full consideration.
The sole issue on appeal was whether the transfers of Anne’s assets to the limited partnership amounted to a bona fide sale. The court noted that it must conduct an objective, factual inquiry to determine whether the transfer served a substantial nontax purpose and was actually motivated by that purpose.
The estate asserted that the transfers had multiple nontax purposes. First, the estate argued that the transfers remedied limitations in Anne’s POA, which it claimed did not provide a workable plan for appointing a successor agent. Although the POA named Bryan’s two sisters as successor agents, the estate asserted that the sisters did not feel comfortable managing Anne’s financial affairs. The court rejected this concern, finding that neither Anne, a sophisticated businesswoman, nor Bryan nor his sisters expressed any such concerns at the time of the POA’s execution. Further, the formation of the limited partnership, which was managed solely by Bryan, did not remedy the alleged problems with succession.
Second, the estate asserted that the transfers were necessary because financial institutions had continuously failed to expeditiously honor Bryan’s authority as Anne’s agent under the POA. The court rejected the estate’s argument based on Bryan’s ability, as Anne’s agent, to quickly transfer $17 million of assets to the limited partnership within the span of one month.
Third, the estate claimed that the transfers to the limited partnership were necessary to consolidate and streamline the management of Anne’s assets. The court rejected its argument, finding that most of the assets—a professionally managed brokerage account, shares of bank stock, and a tree farm managed by a local company—did not require active management or streamlining.
Fourth, the estate asserted that the transfers were necessary to protect Anne’s assets against fraud and elder abuse. Although the evidence showed that two instances of financial elder abuse had occurred, Bryan did not form the limited partnership until several years later. The court found that Bryan would have formed the limited partnership much earlier if elder abuse had truly been his motivation.
The court further found that other factors, including the timing of the transfers, which occurred concurrently with Anne’s significant health deterioration in May 2016, and an email from Bryan’s attorney to an appraiser seeking a deeper discount, supported the tax court’s ruling that the nontax purposes asserted by the estate were likely “after-the-fact justifications, not actual motivations.” Estate of Fields v. Comm’r of Internal Revenue, No. 25-60403, 2026 WL 1642415, at *5 (5th Cir. June 8, 2026).
Therefore, the court affirmed the tax court’s ruling that the transfers were not made for a substantial nontax purpose. The court ruled that the value of the transferred assets must be included in the value of Anne’s gross estate. Further, the court ruled that the accuracy-related penalty was justified because Bryan should have known that a $6 million reduction in reportable assets was too good to be true; further, the estate had failed to show that it had relied in good faith on a tax professional’s advice in including only the partnership interest instead of the value of all assets in Anne’s gross estate.
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