## Facts

- Joseph G. Gokey, an Illinois resident, died October 20, 1969; Mildred A. Gokey was executor.
- In 1961, Joseph created irrevocable trusts for two minor children (Gretchen and Patrick); Mildred served as sole trustee during Joseph’s life.
- Until each child reached age 21, the trustee was directed to use some or all net income for the child’s “support, care, welfare, and education,” with unused income accumulated into principal.
- Under Illinois law, Joseph had a legal duty to support his minor children.
- The same 1961 instrument created a separate trust for Mildred with income for life and a corporate trustee’s discretionary power to invade income or principal for her “care, comfort, support or welfare.”
- Upon Mildred’s death, the remainder of her trust was to pass in one-third shares to the children’s trusts.
- The Commissioner determined an estate tax deficiency and asserted transferee liability against the trustees of a revocable trust, and litigated whether the children’s trust assets and their remainder interests in Mildred’s trust were includable and, if so, how the remainders should be valued.

## Issues

1. Whether the assets of irrevocable trusts for decedent’s minor children were includable in the gross estate under I.R.C. § 2036(a)(1) because the trusts could satisfy the decedent’s legal support obligation.
2. If includable, how to value the children’s one-third remainder interests in the trust for the surviving spouse when the trustee held discretionary power to invade corpus for the spouse’s benefit.

## Decision

- The Tax Court held the children’s trusts were support trusts whose income could discharge the decedent’s legal duty of support; the trusts’ assets were includable in the gross estate under § 2036(a)(1).
- The Tax Court held the children’s one-third remainder interests in Mildred’s trust were includable and initially valued them using actuarial tables.
- On appeal, inclusion of the remainder interests was affirmed, but the valuation was reversed and remanded because the actuarial tables did not reflect the likelihood of principal invasion under the spouse’s trust.
- On remand, the Tax Court redetermined fair market value based on factual findings concerning the spouse’s expected needs and probable corpus invasion.

## Legal Principles

- A transfer to an irrevocable trust for minor children may be included in the settlor’s gross estate under I.R.C. § 2036(a)(1) when trust income is directed to the children’s support and thereby can satisfy the settlor’s state-law duty of support; such discharge constitutes retained “possession or enjoyment.”
- When an included trust holds additional property interests (such as remainders in another trust), those interests are also included and must be valued as of the relevant valuation date.
- Standard actuarial valuation tables are not controlling where a life tenant’s trust includes a discretionary power to invade principal; fair market value of the remainder must reflect the probability and expected extent of invasion.

## Conclusion

The case applied § 2036 to include in a decedent’s gross estate the assets of children’s support trusts that could satisfy his legal support obligation, and required that remainder interests passing from a spouse’s trust be valued with realistic adjustment for discretionary corpus invasion rather than by mechanical use of actuarial tables.


Estate of Gokey v. Commissioner, 72 T.C. 721 (1979)