Repository: UIHistories Project: Board of Trustees Minutes - 1982 [PAGE 257]

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246

BOARD OF TRUSTEES

[May 21

President Stone announced that an executive session was requested and ordered for consideration of pending litigation.

EXECUTIVE SESSION

The board considered the following item of business.

Settlement of Edna M. McLaughlin Estate

(1) Edna M. McLaughlin died on September 11, 1978, leaving a will which bequeathed her residuary estate to the Belleville National Savings Bank in trust for thirty years for the benefit of the University of Illinois for the purpose of paving the educational costs of students on the basis of their financial needs. Five percent of the value of the residuary estate is to be paid to the University annually during the thirty-year period, at the end of which the trust terminates and the principal is to be distributed to the University to be used for the purposes stated. The estate is now pending in the Circuit Court of St. Clair County, Illinois. In 1968 Edna McLaughlin and her late husband purchased 106 acres of farm land in McLean County, Illinois, for $78,440. The land was farmed by James McLaughlin, a nephew of the decedent, who claims that the decedent and her husband were acting as the financial backers for him in the farm purchase, and that they took title in their names and agreed to convey the property to the nephew when he had paid them the purchase price in full. After the death of the decedent's husband, she entered into an option agreement with the nephew, dated April 13, 1977, pursuant to which the nephew was given the option to purchase the farm for $78,440. In 1977 the value of the property was substantially in excess of the option price. The nephew desires to exercise the option and obtain title by paying the $78,440 option price. A Federal Estate Tax return was filed by the executor which reported the value of the property on the date of the decedent's death in 1978 to be $332,000, disclosed the existence of the $78,440 option, and apportioned to the nephew approximately $40,000 of administration expenses based on the proportion of the value of the farm to the balance of the residuary estate. The nephew contests the allocation of these expenses and maintains he is entitled to a conveyance of the farm upon payment of the option price. It is not clear under Illinois law that administration expenses can be so apportioned. In auditing the estate tax return, the Internal Revenue Service has increased the value of the farm as of the date of the decedent's death to $413,400, has treated the 1977 option agreement as a gift in contemplation of death, thereby increasing the taxable estate by $334,960 (the redetermined value of $413,400 less the $78,440 option price), and has assessed a gift tax on the decedent's 1977 gift of $27,342.70 (the total liability of the estate for the gift transaction, including the gift tax, interest and penalties, amounts to $47,586.84). It is possible that the IRS determination of the value of the land at the date of death may be reduced somewhat through further discussions. T h e increase in the Federal Estate Tax through the gift in contemplation of death is approximately $72,000, including interest. As a result of negotiations among the executor, the nephew, and the University, a settlement has been proposed whereby the nephew would pay the executor $150,000 in return for a deed to the farm (the amount being equivalent to the $78,440 option price plus approximately $72,000 of additional Federal estate taxes incurred by reason of the farm transaction being treated as in contemplation of death) and the executor would pay all administration expenses (in lieu of attempting to apportion $40,000 of them to the nephew) and gift tax liability of $47,586.84. T h e executive vice president and the university counsel recommend that authority be given to complete the settlement as proposed. I concur.