Fifth Circuit Pulls $17 Million Back Into an Estate Over a Partnership Formed Weeks Before Death

A federal appeals court on June 8, 2026 affirmed a Tax Court ruling that swept about $17 million of assets back into a Texas estate. The assets had been placed in a family limited partnership in the final weeks of the owner's life. In Estate of Fields v. Commissioner, the Fifth Circuit held that the transfers served no substantial non-tax purpose, so the partnership's built-in valuation discount did not count. The court also upheld a 20% accuracy-related penalty.

What happened

Anne Milner Fields ran her late husband's oil business for decades. In 2010 she named her great-nephew, Bryan Milner, a corporate finance professional, as her executor and her agent under a power of attorney. She was diagnosed with Alzheimer's disease in 2011, and by 2012 Milner was handling most of her finances.

After a fall in early May 2016, Milner began estate planning on her behalf. On May 20, an attorney filed formation papers for AM Fields, LP and emailed an appraiser about getting a deeper discount. Milner signed the partnership agreement on May 25. Fields took a 99.9941% limited partner interest for about $16.97 million of assets. A management company owned solely by Milner took the 0.0059% general partner interest for $1,000.

The transfers came quickly. Interests in two family LLCs and a tree farm went in on May 27. On June 6, $5.34 million of local bank stock followed. On June 9, Fields's physician described her Alzheimer's as end stage. On June 13, nearly $10 million from a brokerage account was moved in, leaving her with about $2.15 million outside the partnership. She entered hospice on June 15 and died on June 23, 2016.

Why the partnership failed

Section 2036(a) pulls transferred property back into a gross estate when the decedent kept its enjoyment until death. The one relevant exception covers a bona fide sale for adequate and full consideration. The Fifth Circuit's earlier decisions in Kimbell and Strangi require that a transfer to a partnership serve a substantial business or other non-tax purpose, measured objectively.

The estate offered three reasons for the partnership, and the court rejected each:

• Weak power of attorney. Milner moved $17 million in a month using only his authority as agent, and the partnership's own succession terms would not have fixed the problem the estate described.
• Consolidated management. None of the assets were working business interests that needed active management. Wells Fargo and later UBS professionally managed the brokerage account, and a local company had run the tree farm for decades.
• Elder abuse protection. The two incidents the estate cited happened in 2011 and 2013, years before anyone formed the partnership.

The court also agreed with the Tax Court's list of troubling facts. The partnership was formed only after Fields's health collapsed, and Milner stood on both sides of every transaction. The transfers also left the estate without enough cash to pay her specific bequests.

The after-tax math

The estate's return reported Fields's partnership interest at $10,877,000 instead of the roughly $17 million of assets behind it, lowering the gross estate by about $6 million. The estate computed its tax at $4,617,800. The Tax Court found a deficiency of $1,828,594 and a penalty of $270,417, which brings the extra cost to about $2.1 million before interest.

The penalty holding may matter as much as the valuation. The Fifth Circuit said a $6 million drop in reportable assets should have looked too good to be true to someone with Milner's finance background. It found no evidence that any lawyer or accountant had advised that reporting the discounted interest was proper. Hiring professionals, the court said, is not enough by itself to show reasonable cause.

Moves to discuss with your advisor

• Families who hold assets in partnerships or LLCs for estate planning often document the non-tax reasons when the entity is formed, such as centralized management of operating assets, and then follow the entity's formalities.
• Timing weighs heavily. An entity formed and funded years before death, while the owner is healthy, looks different from one created during a medical crisis.
• Keeping enough assets outside the entity to cover living costs and bequests avoids one of the facts the courts cited here.
• When a return relies on a large discount, a written opinion supporting that position may be worth discussing, since it goes directly to the penalty defense.

What to watch

Fields adds to a long run of deathbed partnership cases the IRS has won under Section 2036, and it comes from the circuit that decided Kimbell. Practitioners in Texas, Louisiana and Mississippi, the Fifth Circuit's states, will likely treat the timeline and penalty analysis as the current standard for partnerships formed late in life.

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.