Richard v. Comm'r of Internal Revenue (In re Estate of Draper)
| Decision Date | 09 April 1975 |
| Docket Number | 6162-73.,Docket Nos. 6161-73 |
| Parties | ESTATE OF HARRY E. DRAPER, DECEASED, A. FREDERICK RICHARD AND JOHN T. PRATT III, EXECUTORS, AND ESTATE OF ELIZABETH C. DRAPER, DECEASED, CHARLES W. DOWNER AND A. FREDERICK RICHARD, ADMINISTRATORS WITH WILL ANNEXED, PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Evan Y. Semerjian, for the petitioners.
Barry J. Laterman, for the respondent.
Harry E. Draper owned all the incidents of ownership in two insurance policies on the life of his wife, Elizabeth C. Draper, and was the beneficiary thereof. Harry feloniously shot and killed Elizabeth and then killed himself. In an action brought in the state probate Court by the executor of Harry's estate, that court held that Elizabeth's estate had no interest in the policies or proceeds thereof, and that under Slocum v. Metropolitan Life Ins. Co., 245 Mass. 565, 139 N.E. 816 (1923), Harry could not benefit from his felonious act and was not entitled to the proceeds of the policies. The Probate Court directed that the proceeds be paid to the three children of Harry and Elizabeth. Respondent determined that the proceeds were includable in both Harry's and Elizabeth's estates for Federal estate tax purposes; petitioners claim that the proceeds are not taxable in either estate. Held, the value of the two life insurance policies on Elizabeth's life is not taxable in Elizabeth's estate but is taxable in Harry's estate.
Respondent determined deficiencies in petitioner's Federal estate tax as follows:
+-----------------------------------------------+
¦Petitioner ¦Amount ¦
+------------------------------------+----------¦
¦ ¦ ¦
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¦Estate of Harry E. Draper, et al. ¦$37,205.39¦
+------------------------------------+----------¦
¦Estate of Elizabeth C. Draper, et al¦58,272.92 ¦
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The parties have settled all issues except whether the proceeds, a total of $78,345.68, of two insurance policies on the life of Elizabeth C. Draper, are includable in either estate.1
This case was submitted under Rule 122 of the Tax Court Rules without trial. All facts were stipulated and are so found. We shall summarize them here.
At the time the petitions herein were filed, the executors of the Estate of Harry E. Draper (Harry) and the administrators with will attached to the Estate of Elizabeth C. Draper (Elizabeth) had their principal offices in Boston, Mass.
The two decedents were husband and wife. Elizabeth B. Draper, Harriette D. Downer, and Alice P. Draper are their daughters.
On or about February 24, 1955, Harry purchased from the John Hancock Mutual Life Insurance Co. (John Hancock) two insurance policies, each in the face amount of $50,000, on Elizabeth's life. Harry designated himself beneficiary, paid all premiums, and retained all incidents of ownership. Specifically stricken from both policies were printed clauses providing for payment to the ‘executors or the administrators of the Insured’ if no beneficiary were living at the insured's death, and typed language was substituted requiring payment in that case to the policy ‘Owner and Holder.’
On June 15, 1969, Harry feloniously shot and killed Elizabeth and then shot himself. Harry's motive is not reflected in the instant record. Harry died on July 10, 1969, from his self-inflicted wounds.
At Elizabeth's death, the life insurance policies had a total net face value of $78,345.68.
In his will, Harry bequeathed his nonbusiness tangible personal property to his wife or children with certain conditions not relevant here. The residue of the estate was to be paid to ‘the Trustees of the HARRY E. DRAPER INSURANCE TRUST.’ Neither the trust instrument nor its terms were introduced into evidence.
Elizabeth's will devised: (1) Her jewelry, clothes, and ‘other articles of personal use or ornament’ to her daughters; (2) her remaining tangible personal property to Harry; and (3) the residue to a trust for the following purposes:
1. To invest and reinvest the same and to pay the net income thereof not less frequently than quarterly to my said husband during his life.
2. On his death or if he should die before me on my death, to divide the balance of said residue into as many equal shares as there shall be children of mine then living, or deceased children of mine leaving issue then living, and pay one of said shares to each such living child of mine and one of such shares per stirpes to the issue of each deceased child. Provided, however, that as to the share of either of my children who may be under thirty (30) years of age at the death of the survivor of myself and my said husband, my trustees shall continue to hold the same in trust and pay the net income only to such child and upon her attaining the age of thirty (30), pay over the principal to her free of trust. The share of a child which is being so held in trust, shall upon her death prior to attaining the age of thirty (30), be paid to her issue per stirpes and in default of such issue to my then living issue per stirpes.
The Federal estate tax return for Harry's estate, filed in October 1970, showed the insurance policies in question as part of the estate, but listed them as of ‘uncertain’ value because ‘Insurer challenging payment due to circumstances of insured's death.’
The Federal estate tax return for Elizabeth's estate, filed in September 1970, disclosed the existence of the policies but did not include them in the estate or state a value for them, noting that ‘all incidents of ownership * * * belonged to decedent's husband’ and that ‘insurer is challenging payment due to circumstances of decedent's death.’
On June 6, 1972, the executors of Harry's estate filed a petition in the Essex County, Mass., Probate Court seeking a decree declaring to whom and in what amounts the proceeds of the life insurance policies were payable. The petition alleged in part:
That following the death of Harry E. Draper your Petitioners filed a proof of claim requesting of the Company that the aforesaid insurance proceeds be paid to them as the legal representatives of the Estate of Harry E. Draper, the one deceased beneficiary, and that the proceeds have not been paid to your Petitioners because the Company requires that general releases and an indemnity agreement be signed by all parties in interest running in favor of the Company since it is the position of the Company that the circumstances surrounding the death of Elizabeth C. Draper are such that the doctrine set forth in the case of Slocum v. Metropolitan Life Insurance Company, 245 Mass. 565, is applicable and that your Petitioners may be estopped from receiving the aforesaid insurance proceeds, and that therefore Elizabeth B. Draper, Harriet (sic) D. Downer and Alice P. Draper, the children of Elizabeth C. Draper, may be entitled to receive said insurance proceeds * * *
Named respondents to the petition included the administrators of Elizabeth's estate, John Hancock, and ‘william ‘a. ‘williams, District Director of the Internal Revenue,‘ as well as the Draper children.
In response, John Hancock filed an ‘Answer By Way of Interpleader’ in which it stated in part:
This respondent admits that it received a Proof of Death form signed by petitioner * * * requesting that the proceeds of the aforesaid insurance policies be paid to the Estate of Harry E. Draper and this respondent admits that it has not paid the proceeds of the policies in response to the aforesaid request, and that this respondent insisted that releases be executed by all parties in interest before it would pay the insurance proceeds to one or more of the parties in interest; and this respondent further admits that Elizabeth B. Draper, Harriett D. Downer, and Alice P. Draper are the only and surviving children of Harry E. Draper and Elizabeth C. Draper and that those three children may be entitled to the aforesaid insurance proceeds because the circumstances of Elizabeth C. Draper's death possibly were such that the rule of law set forth in Slocum v. Metropolitan Life Insurance Co. 245 Mass. 565 would bar any recovery of the insurance proceeds by the Estate of Harry E. Draper * * *
* * * this respondent cannot, without hazard to itself, undertake to decide as to the validity or the superiority of the respective claims and is unwilling to take the risk of so deciding and subjecting itself to multiple liability on account of obligation * * * The children of Harry and Elizabeth appeared as opposing parties in interest and claimed that they were entitled to the insurance proceeds rather than anyone else:
the circumstances surrounding the death of Elizabeth C. Draper are such that the Executors of the Will of Harry E. Draper are estopped from receiving the proceeds of the insurance policies referred to in paragraph 3 of the petition by virtue of the doctrine set forth in the case of Slocum v. Metropolitan Life Insurance Company, 245 Mass. 565.
* * *by virtue of the application of the doctrine set forth in the Slocum case the proceeds of the aforesaid insurance policies are not payable to the estate of Elizabeth C. Draper by reason of the fact that Harry E. Draper who survived Elizabeth C. Draper was a beneficiary of a trust under her will into which the insurance proceeds normally would have flowed.
* * * by extension of the application of the doctrine set forth in the Slocum case, only your Respondents are entitled to receive the proceeds of the aforesaid insurance policies.
On January 26, 1973, the Essex County Probate Court entered a decree providing:
that as a result of his having feloniously taken the life of Elizabeth C. Draper, Harry E. Draper and his estate are estopped from receiving the proceeds of the John Hancock Life Insurance policies * * * (at issue here); that the Estate of...
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