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would go beyond elucidating contractual
The court determined that consideration of language to changing and overriding it.
Texas contract law does not allow for
the estate plan context still hewed too closely that.” Furthermore, even if the contracts
to consideration of the taxpayers’ subjective were ambiguous, the court did not find
intent to alter the understanding of the objective facts or circumstances sur-
rounding the transfer that would render
contractual language. a different result. The court noted that
the only objective circumstance the tax-
payers could point to in support of their
reading was the setting of the transfer, as
amount of interests transferred should court stated: “By its plain meaning, the part of the estate planning that aimed to
be reallocated should the valuation language of this gift document and the protect their assets while also avoiding as
change. The Tax Court rejected these nearly identical sales document transfers much tax liability as possible. However,
arguments, finding that the language in those interests that the qualified ap- the court determined that consideration
the transfer documents was not a valid praiser determined to have the stated of the estate plan context still hewed too
formula clause that could support reallo- fair market value — no more and no closely to consideration of the taxpayers’
cation. Mrs. Nelson had transferred the less.” Because the taxpayers qualified it subjective intent to alter the understand-
percentage of interests that the appraiser as the FMV that was determined by the ing of the contractual language.
had determined to have the values stated appraiser, as opposed to a final determi- Notably, the Fifth Circuit empha-
in the transfer documents; those per- nation based on gift tax principles, once sized that the language in the Nelsons’
centages were fixed once the appraisal the appraiser had determined the FMV gift instrument differed from similar
was completed. The Nelsons appealed to of a 1% limited partner interest in the contracts in the same setting. The court
the Fifth Circuit. FLP and the stated dollar values were held that the fact that the transfers
The Fifth Circuit noted that the converted to percentages based on that involved a family trust and family assets
issue before it was whether the two appraisal, the court held, those percent- and were made in the setting of estate
transfer documents transferred specific ages were locked and remained so even planning should not be used to interpret
percentages of limited partner interests after the valuation changed. the taxpayers’ intent.
or the amount of interests that equaled The Fifth Circuit also discussed
fixed dollar amounts. The latter theory that the gift instrument lacked crucial IRS challenge of
would allow the percentage of interests language generally contained in transfer fractional-interest discounts
transferred to be reallocated should the documents in formula-clause cases — denied summary judgment
valuation change. The former would specific language describing what should In Buck,14 a district court denied the
render the percentage of interests happen to any additional shares that government’s motion for partial sum-
transferred fixed even in the face of a were transferred should the valuation be mary judgment in its challenge of an
changed valuation. successfully challenged. Nothing in the individual’s valuations of timberland for
Citing prior cases, the Fifth Circuit agreements compelled the trust to return gift tax purposes, finding that his gifts
discussed that, when determining the excess units or do anything with excess of fractional interests in the land to his
amount of gift tax that applies to a units should the valuation change. sons must be valued separately at the
transfer, the nature of that transfer is The Fifth Circuit found that the time of transfer.
ascertained by looking to the transfer transfer agreements were not ambigu- Between 2009 and 2013, the tax-
document and its language, rather than ous — the meaning of the language payer purchased $82,853,050 in tracts
considering subsequent events. The prescribing that an appraiser would of timberland in upstate Maine and
court determined that the gift instru- determine the percentage of interests to Vermont. From 2010 to 2013, he gifted
ment expressly qualified the definition be transferred was definite and certain. interests in these tracts to his two sons.
of “fair market value” for purposes of de- The court stated: “The Nelsons’ read- Each son received a 48% interest in each
termining the interests transferred. The ing, based on their subjective intent, tract, while the taxpayer retained a 4%

14. Buck, 563 F. Supp. 3d 8 (D. Conn. 2021).

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