## Facts

- Elizabeth G. Huntington married Dana Huntington; Dana had two adult sons (Charles and Myles) from a prior marriage, and Dana and Elizabeth had a daughter (Nancy).
- In 1978, Dana executed a will leaving $25,000 to each child and placing the remainder in trust for Elizabeth, with the trust corpus to pass equally to the three children at Elizabeth’s death.
- In 1979, Dana executed a new will expressly disinheriting the children and leaving his entire estate to Elizabeth; Dana died in 1980 and this will was probated.
- Charles and Myles asserted Dana changed his estate plan based on a mutual or reciprocal wills agreement: Elizabeth allegedly promised to devise her estate equally among the three children.
- After Dana’s death, the sons sued Elizabeth to enforce the alleged agreement; the dispute was settled with an arrangement under which each son would receive 20% of Elizabeth’s estate and Nancy 60%.
- Elizabeth later died intestate, and her estate passed to Nancy under intestacy law.
- Charles and Myles sued Elizabeth’s estate to enforce the settlement; the estate paid $425,000 to resolve the claims.
- The estate tax return deducted the $425,000 as a “claim against the estate” under 26 U.S.C. § 2053; the IRS disallowed the deduction, and the Tax Court upheld the disallowance.

## Issues

1. Whether a $425,000 settlement payment to stepchildren, based on an alleged mutual-wills arrangement, was deductible as a “claim against the estate” under 26 U.S.C. § 2053(c)(1)(A).
2. Whether the underlying promise was “contracted bona fide and for an adequate and full consideration in money or money’s worth” as required by § 2053(c)(1)(A).

## Decision

- The First Circuit affirmed the Tax Court’s decision disallowing the deduction.
- The court held the underlying arrangement was an intrafamily, testamentary-type transfer and was not supported by “adequate and full consideration in money or money’s worth.”
- The fact that the obligation was asserted in litigation and resolved by a cash settlement did not change the statutory characterization of the claim; deductibility depended on the origin and nature of the underlying promise.

## Legal Principles

- Under 26 U.S.C. § 2053(c)(1)(A), a claim founded on a promise or agreement is deductible only if the agreement was made in good faith and supported by “adequate and full consideration in money or money’s worth.”
- Family-motivated or donative arrangements (including reciprocal or mutual wills understandings) generally do not satisfy the “money or money’s worth” requirement.
- A settlement payment may be nondeductible where the underlying obligation reflects a testamentary reallocation of family wealth rather than an economic exchange reducing the taxable estate.

## Conclusion

The court disallowed the estate’s deduction for the $425,000 settlement because the mutual-wills-based promise was not supported by adequate and full consideration in money or money’s worth, and a later settlement could not convert a testamentary-type arrangement into a deductible debt under § 2053.


Estate of Huntington v. Commissioner, 16 F.3d 462 (1st Cir. 1994)