624 F.2d 833 (8th Cir. 1980), 79-1870, Hunter v. United States

Docket Nº:79-1870.
Citation:624 F.2d 833
Party Name:Sue Ann HUNTER, Marie Joyce Kotsonis, L. Fargo Richardson and The L. F. Richardson Foundation, Appellees, v. The UNITED STATES of America, Appellant.
Case Date:June 25, 1980
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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624 F.2d 833 (8th Cir. 1980)

Sue Ann HUNTER, Marie Joyce Kotsonis, L. Fargo Richardson

and The L. F. Richardson Foundation, Appellees,


The UNITED STATES of America, Appellant.

No. 79-1870.

United States Court of Appeals, Eighth Circuit

June 25, 1980

Submitted April 14, 1980.

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Wm. S. Estabrook, III, Atty., Tax. Div., Dept. of Justice, Washington, D. C. (argued), Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews and Robert A. Bernstein, Washington, D. C., Ronald S. Reed, Jr., U.

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S. Atty., Kansas City, Mo., on brief, for appellant.

Guy A. Magruder, Jr., Terrell, Van Osdol & Magruder, Kansas City, Mo., for appellee.

Before STEPHENSON and McMILLIAN, Circuit Judges, and VIETOR, [*] District Judge.

STEPHENSON, Circuit Judge.

The United States appeals from the district court's 1 order granting the plaintiffs-appellees' motion for summary judgment. Judgment was entered in favor of the plaintiffs the sole distributees and beneficiaries under the last will and testament of Lloyd F. Richardson, deceased entitling them to obtain a refund of federal estate taxes which the district court ruled were erroneously assessed against them. On appeal the government argues that the district court erred in holding that proceeds from insurance policies on the decedent's life were not includable in his gross estate under I.R.C. § 2042(2), because decedent did not possess "incidents of ownership" in the policies. We affirm.

I. Facts and Proceedings Below

The parties submitted an extensive stipulation of facts with their cross-motions for summary judgment. The district court presented a detailed summary of the facts from this joint stipulation, see Hunter v. United States, 474 F.Supp. 763, 764-65 (W.D.Mo.1979). We therefore only briefly outline the relevant facts.

Lloyd F. Richardson (Lloyd) purchased eleven insurance policies on his own life from the years 1943 to 1955. From 1944 to 1961, Lloyd transferred the ownership of his policies to his wife Hazle D. Richardson (Hazle). After the transfer of ownership, Hazle changed the beneficiaries of all the policies. She became the primary beneficiary and her children and her estate were named as succeeding beneficiaries.

On March 22, 1961, Hazle properly executed her last will and testament, which named Lloyd as both executor of her estate and trustee of a testamentary trust for the benefit of their children and grandchildren. On August 29, 1970, Hazle died and Lloyd was appointed executor of Hazle's estate by the county probate court, and the appointment lasted until his death on September 18, 1972. At the time of his death, Lloyd had not distributed the assets of the residuary estate to the testamentary trust nor had he assumed the duties of trustee under the terms of the will.

The only assets in the residuary estate other than the life insurance policies were 626 shares of stock in the Richardson Motor Company. Lloyd was president of this corporation which operated an automobile dealership. At the time of Hazle's death, she and her husband were the only shareholders in the corporation. All administration expenses, estate taxes, inheritance taxes and court costs relative to Hazle's estate were paid by the executors from non-probate assets. It is stipulated that there is no evidence that Lloyd exercised or attempted to exercise any incidents of ownership in the life insurance policies after Hazle's death.

After Lloyd's death, the value of the life insurance policies was not included in his gross estate on the federal estate tax return filed by Lloyd's estate. The Internal Revenue Service assessed an additional estate tax on the value of the insurance policies, which it concluded should be included in his gross estate. The estate paid the deficiency and brought this action seeking a refund.

The district court determined that Lloyd's powers both as executor and as designated trustee must be examined to determine if he possessed the requisite incidents of ownership in the insurance policies. The court determined that, for purposes of I.R.C. § 2042(2), Lloyd did not possess incidents of ownership in either capacity. The government

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appeals, alleging that (1) under the provisions of the will and Missouri law, Lloyd, as executor, possessed the necessary incidents of ownership; and (2) the fiduciary capacity he occupied as trustee included powers sufficient to qualify as incidents of ownership in the policies.

In addition to relying on the reasoning of the district court, appellees contend that Lloyd's powers as potential trustee are irrelevant and should not be considered because (1) at the time of his death Lloyd was not yet trustee of the residuary trust, and he did not possess the powers to become trustee; and (2) the policies would not have passed under Hazle's will to Lloyd as trustee.

II. Incidents of Ownership under I.R.C. § 2042(2)

Like the district court in the instant case, we find it appropriate to consider Lloyd's capacity as executor and his capacity as potential trustee separately to determine if he possessed incidents of ownership in either capacity which would require inclusion of the value of the policies in his gross estate under I.R.C. § 2042(2).

I.R.C. § 2042(2) provides in relevant part that for estate tax purposes the gross estate of the decedent shall include the value of all property "(t)o the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person."

The term "incidents of ownership" is not specifically defined in either the statute or regulations, although its meaning is discussed in some detail in Treas.Reg. (26 C.F.R.) § 20.2042-1(c)(2):

For purposes of this paragraph, the term "incidents of ownership" is not limited in its meaning to ownership of the policy in the technical legal sense...

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