Oct. 28--Judith Stoll had moved to Florida after she retired from her family's successful business in Mankato, and in March 2005, she flew her four nephews out East because she had good news she wanted to deliver in person.

With the nephews and their spouses gathered around, Stoll, 62, told them that each was getting a gift of $242,000.

Savvy businesswoman that she was, though, she wanted to take advantage of the IRS' annual gift-tax exclusion, and so the bulk of each nephew's gift would be set up in the form of a promissory note so it would appear to be a loan. But her words were explicit and her intentions clear, the nephews said: The money was a gift, and she never meant for them to repay it.

After Stoll died last October, however, the Chicago lawyer who was executor of her estate told the nephews the promissory notes were just that -- a legal promise to repay money -- and that they owed Judith Stoll's estate $786,000, plus interest.

In a lawsuit that has landed in U.S. District Court in Minneapolis, the nephews have sued their late aunt's estate and its executor. They claim Stoll never wanted the money back and that they want a federal judge to say so in a ruling.

"Over the years, I've done a lot of litigation that involves general issues of transfer of wealth, but this one is peculiar to my personal practice," said Randall Berkland, the Mankato attorney representing the nephews. "Have I had a case like this? Certainly not. This one is unique."

Joseph

Girardi, executor of the estate, declined to comment.

Family members who were contacted either declined to comment or didn't return phone messages seeking comment.

"As a legal issue, there was an obligation to pay the amount of the note that hadn't been forgiven," said Robert A. Stein, former dean of the University of Minnesota Law School, who teaches estate planning and has no connection to the case. "What I think they're going to argue about is whether or not the donor had communicated intent that any amount remaining at the time of her death be forgiven."

By all accounts, Stoll was a success story. Born Judith Hecht in Mankato in 1942, she attended the College of Saint Teresa in Winona and then took a job with the Small Business Administration in Washington.

In 1975, she returned to Mankato to become vice president of the family business, Valley News Co., which supplies magazines, books and other printed items to retailers throughout the Midwest, according to the company's Web site.

She retired in 1997 and married Richard Stoll; they split their time between homes in Boca Raton, Fla., and Chicago. He died in Florida in 2003 at age 70.

Judith Stoll never had children, but she did have four nephews -- Troy Leiferman, of North Mankato; Thomas Leiferman, of Madison Lake, Minn.; Brian Leiferman, of Omaha, Neb.; and Frank Leiferman, of Atlantic, Iowa.

Valley News' Web site says Troy Leiferman is the company's manager, while Thomas Leiferman is the assistant manager.

In March 2005, Stoll flew her nephews and their families to Florida and told them she was giving each $242,000, a figure chosen because it was "the amount of the highest of their home mortgage balances," the lawsuit says.

"Upon the advice of counsel, Judith Stoll structured the gifts to take advantage of the annual gift-tax exclusion allowed by the Internal Revenue Service," the suit says. Of the $242,000 gift, $20,000 was given outright to each nephew and his spouse. Similar amounts also were given to each of Frank Leiferman's three children and Thomas Leiferman's two children in the form of college saving plans; the other two couples didn't have children at the time.

The remainder of the gift "was documented as a loan with the annual gift-tax exclusion to be forgiven each subsequent year," the suit said. "At the death of Judith Stoll, any remaining loan balance was to be forgiven."

"It was an issue of estate planning," Berkland said. "She told them she intended to make a gift to them. They set it up in a way that was intended to minimize taxes, and then, at least according to my clients, she told them to ignore the notes that were set up."

The nephews and their wives signed the promissory notes in June and July of 2005. The notes have an annual interest rate of 3 percent and say the interest is due each Dec. 31 but say the principal is "due and payable upon demand."

The promissory notes lack any language stating the amount will be forgiven after Stoll's death. But the nephews say their aunt never intended for them to repay the money.

A few days after he got his checks, Thomas Leiferman called his aunt to thank her "and to clarify whether any payments of interest or principal needed to be made at any time," the suit says. "Judith Stoll again informed him that the entire $242,000 was a gift and that he never had to make any payments as described in the Promissory Note."

Brian, Troy and Frank Leiferman also called to thank her and asked about having to make payments. Each time, Stoll replied that the money was a gift, the suit claims.

Stoll died in Chicago on Oct. 3, 2008, at age 66. Probate records there show her estate and real property holdings were valued at $7.2 million.

And there was the matter of the four promissory notes.

Berkland said the executor, Girardi, "made clear to my clients that he intended to pursue his claim." So the nephews filed a complaint "for declaratory relief," asking a judge to rule the money was a gift.

Disputing a signed legal document "is not easy," but it can be done, said Stein, the law professor.

"I think the plaintiffs will have to bring in some evidence to demonstrate there was enough intent communicated to cancel the amount at the time of her death," he said. "But otherwise, they were obligated on the note until it was forgiven."

David Hanners can be reached at 612-338-6516.

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