## Facts

- Sylvia Swanson was the trustee and beneficiary of a trust created by her late husband and held substantial assets.
- In 1985, Swanson became legally blind and began relying on her nephew, Dean Stubblefield, to handle her affairs.
- In 1990, as Swanson’s health declined, she executed a durable power of attorney (POA) appointing Stubblefield as her attorney-in-fact.
- The POA granted Stubblefield broad authority to manage and dispose of Swanson’s property, using his sole discretion, but it did not specifically authorize him to make gifts or other gratuitous transfers.
- Shortly before Swanson’s death, Stubblefield made 38 transfers of $10,000 each (totaling $380,000) to himself and 37 other recipients, characterizing the transfers as estate-tax planning designed to use annual gift-tax exclusions.
- The IRS determined that the $380,000 remained includable in Swanson’s gross estate under I.R.C. § 2038 on the theory that the transfers were revocable because they were not authorized under the POA and were therefore invalid or voidable under California law.
- Swanson’s estate paid the assessed estate tax and filed an administrative refund claim, which the IRS denied.
- The estate filed a refund suit in the United States Court of Federal Claims; on cross-motions for summary judgment, that court ruled for the United States, concluding the gifts were invalid under California law and therefore revocable for § 2038 purposes.
- The estate appealed to the United States Court of Appeals for the Federal Circuit.

## Issues

1. Under California law, does a durable POA that broadly authorizes management and disposition of property, but contains no express gifting language, permit an attorney-in-fact to make gifts of the principal’s property (including transfers to the agent)?
2. If the agent’s transfers were unauthorized and void or voidable under California law, are the amounts treated as revocable transfers includable in the decedent’s gross estate under I.R.C. § 2038?

## Decision

- The Federal Circuit affirmed the judgment for the United States.
- The court agreed that, under California law, an attorney-in-fact generally lacks authority to make gratuitous transfers unless the POA clearly grants gifting authority.
- Because the POA did not specifically authorize gifts, Stubblefield’s transfers were invalid or voidable under state law and could be set aside by the principal (or her estate).
- Given that state-law power to undo the transfers, the $380,000 was treated as revocable for purposes of I.R.C. § 2038 and was properly included in Swanson’s gross estate.
- The estate was not entitled to an estate tax refund.

## Legal Principles

- State law governs whether a purported gift is valid and the scope of an agent’s authority under a power of attorney; federal estate-tax consequences follow from the property rights and powers recognized under state law.
- Under California law, general language authorizing an agent to manage, control, or dispose of property does not, without specific terms, authorize the agent to make gifts or other gratuitous transfers, especially transfers that benefit the agent.
- Under I.R.C. § 2038, property is included in a decedent’s gross estate if, at death, the decedent retained (alone or in conjunction with another) the power to alter, amend, revoke, or terminate the transfer’s enjoyment.
- When an agent makes an unauthorized transfer that is void or voidable under state law, the principal’s ability to disaffirm or set aside the transfer can constitute the kind of revocability that triggers inclusion under § 2038.

## Conclusion

Estate of Swanson v. United States held that annual-exclusion transfers made by an attorney-in-fact under a California durable power of attorney that did not expressly authorize gifting were invalid or voidable under state law and therefore treated as revocable, requiring inclusion of the transferred amounts in the decedent’s gross estate under I.R.C. § 2038 and defeating the estate’s refund claim.


Estate of Swanson v. United States, 87 A.F.T.R.2d 2001-2345 (2001)