## Facts

- Charlotte Cardeza created an inter vivos trust for the benefit of her only son.
- Under the trust terms, if Cardeza survived all her children and their issue, Cardeza would receive the trust income for life and could dispose of the trust principal by will.
- Cardeza died at age 85.
- At Cardeza’s death, her son was 64 years old, married to a 59-year-old woman, and had no children.
- There were indications that the son still had the physical ability to father a child.
- The estate-tax dispute turned on whether Cardeza’s retained reversionary interest (contingent on her surviving her son and any issue of the son) had a value greater than 5% of the trust corpus immediately before her death, within the meaning of 26 U.S.C. § 811(c)(2) (1939 Code) (now § 2037).
- The estate paid the tax and filed a refund suit against the United States in the U.S. District Court for the Eastern District of Pennsylvania.
- The government offered actuarial evidence (by affidavit) valuing the reversionary interest, using assumptions that included the premise that the son’s marriage would end only by death (his or his wife’s), not by divorce.
- The estate contested the government’s assumptions, arguing that the trust’s structure gave the son an incentive to have issue and that predicting divorce, remarriage, and childbearing was too uncertain for reliable actuarial valuation.
- Prior case law recognized that if the value of a contingent remainder could not be ascertained, it would be treated as zero.

## Issues

1. Whether, under § 811(c)(2), Cardeza retained a reversionary interest in the trust whose value immediately before her death exceeded 5% of the value of the trust corpus, requiring inclusion in her gross estate.
2. Whether the estate, bearing the burden of proof in a refund suit, showed by a preponderance of the evidence that the government’s actuarial valuation did not establish a reversionary-interest value above the 5% threshold.
3. Whether actuarial valuation was sufficiently reliable when the reversion depended not only on lifespans but also on contingencies tied to personal decisions (including the possibility of divorce/remarriage and the likelihood of issue).

## Decision

- The court treated the controlling question as whether the reversionary interest exceeded the 5% threshold specified in § 811(c)(2).
- The court declined to accept the government’s valuation as establishing a reversionary-interest value above 5%, given the speculative nature of key assumptions (including marital continuity except by death) and the role of contingencies tied to human choices.
- Applying the preponderance-of-the-evidence standard applicable to the taxpayer’s burden in a refund suit, the court concluded the estate prevailed on the valuation/inclusion question.
- Judgment was for the estate on the challenged inclusion, supporting refund relief to the extent tax had been assessed based on a reversionary-interest value exceeding 5%.

## Legal Principles

- Under 26 U.S.C. § 811(c)(2) (1939 Code) (now § 2037), a transferred interest may be included in the gross estate if the decedent retained a reversionary interest whose value immediately before death exceeds 5% of the property’s value.
- In an estate-tax refund suit, the taxpayer bears the burden of nonpersuasion and must prove the relevant facts by a preponderance of the evidence.
- Where a contingent future interest cannot be valued with reasonable accuracy, authorities treat the interest as having a value of zero for applying statutory valuation thresholds.
- Actuarial evidence may be rejected when it depends on unsupported assumptions about personal behavior (such as divorce, remarriage, or decisions affecting whether a beneficiary will have children), especially when the trust arrangement may affect incentives in ways standard actuarial methods do not capture.

## Conclusion

Estate of Cardeza held that the estate was not required to include the trust property under § 811(c)(2) because the government did not establish, using reliable valuation methods, that Cardeza’s contingent reversionary interest exceeded 5% of the trust corpus immediately before her death, so the estate was entitled to refund relief on that inclusion theory.


Estate of Cardeza v. United States, 57-1 U.S.T.C. ¶ 11,681 (1957)