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took over most of Austin’s duties managing KPLP’s assets in
February 1997, as reported in the minutes of the partnership.
During their lives, Austin and Edna never reported self-
employment income from their purported management income; only
after their deaths was the income treated as self-employment
income, on an income tax return filed by Dennis. While we
believe that Austin was skilled at managing his portfolio, the
amount of work and time he committed to managing KPLP’s assets
did not rise to the level that an independent money manager might
have committed, and KPLP’s assets, under Austin’s own plan to
avoid recognition of gain, required little management. While the
passive nature of transferred assets is generally not
determinative in a section 2036 analysis of their transfer to a
family limited partnership, we believe the lack of activity by
Austin with respect to the KPLP assets is relevant to the issue
of whether the payments the living trust received from KPLP were
management fees.
All these facts, taken together, show that Austin and Edna
had an implied agreement with their sons that Austin and Edna
were entitled to the income from the assets they transferred to
KPLP. KPLP was formed as a testamentary vehicle designed to
transfer Austin’s and Edna’s assets to their sons during their
lives at a significant discount, while retaining for Austin and
Edna the economic enjoyment of those assets.
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