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SWAIN v. U.S.

July 10, 1997

ELINOR M. SWAIN AND KAWYN MOODY AS CO-EXECUTORS OF THE ESTATE OF PAULINE E. TAYLOR MOODY, PLAINTIFFS,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Richard Mills, District Judge:

OPINION

                "Death and taxes and childbirth!
                  There's never any convenient
                   time for any of them!*fn1

I. BACKGROUND*fn2

On December 31, 1985, Pauline E. Taylor Moody ("Decedent") and her spouse created an Illinois land trust ("Moody Land Trust I"). All of the holders of a beneficial interest in the Moody Land Trust I entered into the Moody Land Trust Operating Agreement I. Under the agreement, the Farmers State Bank and Trust Company of Jacksonville, Illinois, was the trustee ("Trustee").

On that same day, Decedent and her spouse transferred, by warranty deed, the legal title to certain jointly held real estate located in Pike County, Illinois, to the Trustee.

Also on December 31, 1985, Decedent and her spouse each transferred 11.8% of their respective 50% interest of the beneficial interest in the Moody Land Trust I to their children and grandchildren. This transfer was accomplished by reflecting in the Moody Land Trust Operating Agreement I the percentages of the beneficial interest in the real estate as follows:

  Loren R. Moody (Husband)                   38.20%
  Pauline T. Moody (Decedent)                38.20%
  Elinor M. Swain (Child)                     5.90%
  Debra Kay Maul (Grandchild)                 2.95%
  Sara Jelane Armstrong (Grandchild)          2.95%
  Kawyn Moody (Child)                         5.90%
  Kawyn Moody, Jr. (Grandchild)               5.90%

On January 17, 1989, Decedent and her spouse created a second Illinois land trust ("Moody Land Trust II"). All of the holders of a beneficial interest in the Moody Land Trust II entered into the Moody Land Trust Operating Agreement II. Under the agreement, the Farmers State Bank and Trust Company of Jacksonville, Illinois, was again named the trustee ("Trustee").

On that same day, Decedent and her spouse transferred, by warranty deed, the legal title to certain jointly held real estate located in Pike County, Illinois, to the Trustee.

Also on January 17, 1989, Decedent and her spouse each transferred 9.8% of their respective 50% interests of the beneficial interest in the Moody Land Trust II to their children and grandchildren. This transfer was accomplished by reflecting in the Moody Land Trust Operating Agreement II the percentages of the beneficial interest in the real estate as follows:

  Loren R. Moody (Husband)                   40.20%
  Pauline T. Moody (Decedent)                40.20%
  Elinor M. Swain (Child)                     4.90%
  Debra Kay Maul (Grandchild)                 2.45%
  Sara Jelane Armstrong (Grandchild)          2.45%
  Kawyn Moody (Child)                         4.90%
  Kawyn Moody, Jr. (Grandchild)               4.90%

Neither the Moody Land Trust I nor the Moody Land Trust II ever filed Form 1041 fiduciary income tax returns. Rather, each beneficial interest owner annually received and reported his or her pro-rata share of the income from the real estate legally titled in the names of the land trusts on Schedule E of his or her individual Form 1040's.

During her lifetime, Decedent transferred her entire 50% interest in the Moody Land Trust I to her children and grandchildren. ...


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