Settlement of family litigation did not result in taxable gifts. A settlement of litigation resulted in a resolution of a dispute regarding the ownership of 100 shares of closely-held stock registered in the name of one shareholder. The settlement resulted in the company agreeing to pay $5 million for 66 2/3 shares to the shareholder, with the remaining 33 1/3 shares being held in a trust for that shareholder’s children. The dispute centered around disagreements between the shareholder and his father, who was the president of the company, and who insisted that a portion of the shares were held in an “oral trust” for the benefit of the shareholder’s children. The court concluded that the settlement constituted a bona fide, arm’s-length transaction that was free from donative intent and that was “made in the ordinary course of business.” The transfer was made “for a full and adequate consideration in money or money’s worth,” which was the recognition that the shareholder was the outright owner of 66 2/3 of the shares in the agreement and that the company would pay $5 million in exchange for the shares.
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