## Facts

- Severance A. Millikin created three trusts, including **Trust B (a marital trust)** and **Trust C (a family trust for numerous family beneficiaries)**; Trust B’s remainder passed to Trust C to the extent not appointed.
- Trust B held substantial **liquid assets** and also owned a 150-acre residential estate in Ohio known as **Ripplestone**, which included a gallery containing an art collection.
- Marguerite Millikin held a **general power of appointment** over Trust B’s property.
- Because of that power, Trust B’s assets were **nonprobate** property but were included in Millikin’s **gross estate** for federal estate tax purposes.
- In her will, Millikin exercised her power of appointment to direct that **Trust B’s property** be used to pay the **estate taxes attributable to Trust B’s inclusion** in her gross estate; she did not specifically appoint Ripplestone to any beneficiary.
- The will granted the **Cleveland Museum of Art** the right to select items from the art collection located at Ripplestone.
- After Millikin’s death, the estate paid to **maintain Ripplestone for nearly a year** while the museum made its selections.
- The estate filed its federal estate tax return claiming a deduction under **I.R.C. § 2053** for: (1) the post-death **maintenance costs** of Ripplestone during that period, and (2) **estimated future expenses of selling** Ripplestone.
- After filing the return, the estate **sold Ripplestone**.
- Following an IRS audit, the parties disputed whether the estate could deduct the **costs of selling** Ripplestone as administration expenses.
- The estate petitioned the **United States Tax Court**, which applied Sixth Circuit precedent requiring reference to **state law (Ohio)** to determine whether claimed administration expenses were deductible.
- The Tax Court found that Trust B had roughly **$9 million in liquid assets (apart from Ripplestone)** and concluded the estate **did not need to sell Ripplestone** to pay taxes; Ripplestone could have passed to **Trust C**.
- The Tax Court allowed the deduction for maintenance costs incurred while the museum’s selection right was being carried out, but denied the deduction for the **estimated selling expenses**. The estate appealed.

## Issues

1. Whether, for purposes of **I.R.C. § 2053**, the estate could deduct the **expenses of selling Ripplestone** as “necessary” administration expenses when Trust B had sufficient liquid assets to pay estate taxes and Ripplestone could have been distributed to Trust C instead of sold.

## Decision

- The Sixth Circuit **affirmed** the Tax Court.
- The court upheld the Tax Court’s determination that the **sale of Ripplestone was not necessary** to settle the estate because Trust B had ample liquid assets to pay the taxes attributable to Trust B property.
- Because the **sale was unnecessary**, the related **selling expenses** were not “necessary” administration expenses and therefore were **not deductible** under § 2053.
- The court left undisturbed the Tax Court’s allowance of deductions for **maintenance expenses** incurred during the museum’s art-selection period as expenses needed to carry out distribution-related obligations.

## Legal Principles

- Under **I.R.C. § 2053** and **Treas. Reg. § 20.2053-3**, administration expenses are deductible only if they are **actually and necessarily incurred** in administering the estate.
- In the Sixth Circuit, whether an expense qualifies as a deductible administration expense turns in part on whether it is **allowable under the law of the state** governing the estate (following **Estate of Park v. Commissioner**).
- Under **Ohio law**, administration expenses must be **necessary, reasonable, and just**; “necessary” generally means required to preserve estate property, pay debts and taxes, or accomplish distribution.
- **Sale-related expenses** are not deductible administration expenses when the sale is undertaken as a matter of choice rather than necessity—such as where the estate has **sufficient liquid assets** to satisfy obligations and the property could instead be **distributed in kind**.
- Appellate review gives deference to the Tax Court’s **fact findings** on necessity absent clear error.

## Conclusion

The Sixth Circuit held that the estate could not deduct the estimated costs of selling Ripplestone as administration expenses under § 2053 because, given Trust B’s substantial liquid assets, selling the residence was not necessary to pay estate taxes or otherwise administer the estate, even though the estate ultimately chose to sell the property.


Estate of Millikin v. Commissioner, 106 F.3d 1263 (1997)