## Facts

- Robert H. Lurie died in 1990 with an estate of roughly $130 million, survived by his spouse (Ann Lurie) and six minor children.
- Lurie held limited powers of appointment over multiple preexisting trusts.
- Shortly before death, he exercised those powers to create six trusts for the sole benefit of his children and additional successor trusts; these trusts (collectively, “Notice Trusts”) received the assets of the prior trusts.
- Lurie also created a revocable trust that, at death, divided into a Marital Trust for Ann Lurie and a nonmarital Residuary Trust.
- In prior litigation, the Tax Court determined the Notice Trusts were includible in Lurie’s gross estate, producing an estate tax deficiency of about $12.2 million; the probate estate lacked sufficient funds to satisfy the liability.
- The estate did not contest inclusion or the deficiency amount; it contested which beneficiaries or trusts had to bear the tax deficiency and the litigation/administration expenses.

## Issues

1. Under Illinois law and the governing instruments, does equitable apportionment apply to shift some estate tax burden to the Notice Trusts whose inclusion generated the deficiency?
2. Do the will and revocable trust unambiguously require payment of the deficiency and related litigation expenses from the Marital Trust instead?

## Decision

- The Seventh Circuit affirmed the Tax Court.
- The court held the governing instruments unambiguously directed payment of estate taxes and related expenses from the Marital Trust/estate assets rather than apportioning liability to the Notice Trusts.
- Because the instruments clearly allocated the tax burden, equitable apportionment did not apply.
- Litigation costs arising from the estate tax dispute followed the same allocation and were likewise chargeable to the Marital Trust.

## Legal Principles

- Allocation of federal estate tax burdens among beneficiaries is governed by state law (here, Illinois), principally by the decedent’s intent as expressed in the will and trust instruments.
- Equitable apportionment is a default rule that applies only when the governing documents do not clearly direct a different tax allocation.
- When a will or trust contains an unambiguous tax-allocation clause, courts enforce it and do not reallocate taxes based on which assets generated the tax.
- Expenses reasonably related to resolving the estate tax liability may be charged to the same fund the governing instruments designate to pay the tax, absent a contrary direction.

## Conclusion

The Seventh Circuit enforced the decedent’s unambiguous tax-allocation provisions, requiring the marital trust to pay the estate tax deficiency and related litigation expenses and rejecting equitable apportionment to the children’s trusts despite their inclusion generating the deficiency.


Lurie v. Commissioner, 425 F.3d 1021 (7th Cir. 2005)