All this needs to be run through probate court - especially since there is no formal will. Written agreements need to be recognized as valid or not, and only a court can do that. You also need clarification on gifts, and *exactly* who they are from. I would think (keeping in mind that I am not a legal authority) that if you must first inherit, then any gifts are from you and not from the deceased. If that's the case, then *you* have to file gift tax returns if the value of any gifts given to any one person in a tax year exceeds $14K.
But like I said, that's not my call. you need clear and concise direction from a court of law. Even with that clarity the IRS may not have to agree with it. The IRS has their own tax rules which can only be over-ridden by a federal judge. Since situations such as yours are not dealt with at the federal level, there's no guarantee the IRS will abide by the decision of a lower court, since they legally don't have to.
