CONNECTICUT BANK AND TRUST COMPANY v. United States

• Decision Date: 09 July 1971
• Docket Number: 13402.,13413,Civ. No. 13412
• Citation: 330 F. Supp. 997
• Parties: The CONNECTICUT BANK AND TRUST COMPANY, Executor of the Estate of Warren G. Horton, Plaintiff, v. UNITED STATES of America, Defendant. The CONNECTICUT BANK AND TRUST COMPANY, Executor of the Estate of Charles F. Musk, Plaintiff, v. UNITED STATES of America, Defendant. The CONNECTICUT BANK AND TRUST COMPANY, Executor of the Estate of Mary Ann Musk, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Connecticut

330 F. Supp. 997

The CONNECTICUT BANK AND TRUST COMPANY, Executor of the Estate of Warren G. Horton, Plaintiff, v. UNITED STATES of America, Defendant.

The CONNECTICUT BANK AND TRUST COMPANY, Executor of the Estate of Charles F. Musk, Plaintiff, v. UNITED STATES of America, Defendant.

The CONNECTICUT BANK AND TRUST COMPANY, Executor of the Estate of Mary Ann Musk, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. Nos. 13412, 13413, 13402.

United States District Court, D. Connecticut.

July 9, 1971.

Sherin V. Reynolds, Reid & Reige, Hartford, Conn., for plaintiffs.

B. Blair Crawford, Asst. U. S. Atty., Hartford, Conn., Daniel J. Dinan, Tax Division, Dept. of Justice, Washington, D. C., for defendant.

CLARIE, District Judge.

RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

These actions were consolidated for trial, because of their presenting a common legal issue; each seeks the refund of federal estate taxes assessed on the proceeds received from the settlement of a wrongful death action. The Government's position was that the money damages recovered should be included in the gross estate of the decedents under § 2033 of the Internal Revenue Code. The parties have filed cross motions for summary judgment pursuant to Fed.R.Civ.P. 56, and both concede that no genuine issues of disputed fact exist. The Court finds that under the Connecticut wrongful death statute (§ 52-555, as amended) and the statute prescribing the distribution of damages recovered for wrongful death (§ 45-280, as amended), all sums recovered on such choses in action constitute "property" for estate tax purposes held at the death of the decedents and must be included in the decedents' gross estate.

The tragic facts which gave rise to this litigation have been stipulated to by the parties. On June 14, 1965, Warren G. Horton, Charles F. Musk, and his wife, Mary Ann Musk, (the decedents), together with R. Virginia Horton, the wife of Warren G. Horton (who is not a party to this litigation) were killed when their car exploded, after being struck on the Chesapeake Bay Bridge Tunnel within the State of Virginia, by a tractor-trailer truck owned by HMH Motor Service. The decedents were domiciled in Connecticut at the time of their death and letters testamentary were issued to the plaintiff as executor of the decedents' estates by the probate courts in Connecticut.

In the Spring of 1966, the plaintiff executor commenced a wrongful death action in the state courts of New York against HMH, a New Jersey corporation doing business in New York. The suit was subsequently removed to the Federal District Court for the Southern District of New York. Ultimately the damage claims were settled without a trial and compromise settlements totalling $320,000, were approved and releases authorized by the Connecticut Probate Courts. The plaintiff executor in each instance predicated its claims for recovery under the allegations of the complaint, upon the Connecticut wrongful death statute (§ 52-555). The defendant, HMH, however, contended that Virginia law (§ 8-363), which at that time limited the maximum recovery to $25,000 for each person, should govern the final disposition of the case. Since all cases were settled without a trial, no judicial determination was ever made as to which of these wrongful death statutes (or conceivably whether or not the statutes of other jurisdictions) controlled the plaintiff's potential recovery.

Each settlement, less the costs and expenses, was distributed to the respective estates of the plaintiff's decedents and to the estate of R. Virginia Horton as follows: Warren G. Horton, $51,638.34; Charles F. Musk, $97,080.77; Mary Ann Musk, $37,179.60; R. Virginia Horton, $20,655.33. These receipts were not included in the gross estate of the decedents by the executor, when timely filing was made of their respective federal estate tax returns. However, after an audit, the Commissioner of Internal Revenue assessed deficiencies against the estates of the decedents, maintaining that the wrongful death recoveries were taxable as their property. The deficiencies were paid and claims for refund were filed, upon the denial of which this suit was instituted.

The Court must resolve the issue as to whether or not these proceeds are taxable and this requires a determination of whether the recovery settlements were obtained under the laws of Connecticut, New Jersey, New York, or Virginia. Connecticut, unlike the other named jurisdictions, does not have the so-called "Lord Campbell's Act" wrongful death statute. The latter statute generally requires the vesting of the death action proceeds in the statutory dependents as beneficiaries. Connecticut's position differs from that of the other states hereinbefore mentioned, in that § 52-599 derives its force from the survival of actions law, which thus affords a basis for the Government's claim that these funds are taxable.

Unlike insurance death benefits which are specifically dealt with under the Internal Revenue Code, wrongful death recoveries are not specifically treated in the statutes, regulations, or ruling case law. However, there have been several revenue rulings on this and other closely related topics, which the Court will consider and discuss in helping it to resolve the issue. United States v. Correll, 389 U.S. 299, 307, 88 S.Ct. 445, 19 L.Ed. 2d 537 (1967).

Section 2033 of the Revenue Code and its predecessor, provided in part: "The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death." In E.T. 18, 1940-2 Cum.Bull. 285, the question arose as to whether money paid by the Social Security Administration to widows, children, or parents by reason of the death of a person covered by the Social Security Act was to be included in the gross estate for estate taxation. The Internal Revenue Service declared that such funds were not includable, because such sums were not "property" under the federal estate tax provision cited above.

"An examination of * * * that Act * * * shows that the decedent has no control over the designation of the beneficiaries or the amounts payable to them. The beneficiaries and the amounts are fixed by the provisions of the Social Security Act, as amended, and the payments are made directly to the beneficiaries." See also Rev.Rul. 56-637.

However, Rev.Rul. 54-19 is more directly in point. In that instance, the Revenue Service was asked to rule on whether settlement funds received under the New Jersey wrongful death statute were includable in the gross estate of the decedent. The ruling sets forth the New Jersey statute and finds that while the administrator or executor is authorized to commence the wrongful death action in his official capacity, he does in fact act solely for the intestate successors to the plaintiff's decedent. This ruling concludes:

"The decisive question in this case is whether the decedent had an interest in the amount recoverable under the New Jersey `Death by Wrongful act' statute or in the right of action at the time of his death. The action against the carrier was brought under the statute, and the statute governs in determining the distribution of the proceeds of the recovery. The decedent in his lifetime never had an interest in the right of action or in the proceeds. He did not create the right, it was created by statute and vested in the persons designated in the statute. Inasmuch as the decedent had no right of action or interest in the proceeds at the time of his death, nothing `passed' from the decedent to the beneficiaries. Accordingly, the amounts recovered by the beneficiaries would not be includable in the decedent's gross estate for Federal estate tax purposes."

See also Rev.Rul. 68-88 where the service similarly interpreted the Virginia wrongful death and related uninsured motorist statutes.

Finally in Rev.Rul. 69-8 the Internal Revenue Service was asked whether or not damages recovered in an action brought under the Federal Death on the High Seas Act were includable in the gross estate. The ruling indicated that the complaint sought recovery both for the benefit of the widow and children of the deceased (as specifically allowed in the statute) and in addition, an allowance for the decedent's pain and suffering (judicially determined to be actionable under the state survival statutes). The ruling concluded that such portion of the damages recovered for the support of statutory beneficiaries should be treated as not taxable, in the same manner as the ruling under the New Jersey wrongful death statute, while that portion of the monetary recovery relating solely to pain and suffering, based upon the survival of actions theory, was required to be included in the gross estate. In summary, the factors taken into account in these rulings are: (1) what was the interest held by the decedent in the right of action; (2) the extent to which the statute sued under is in a form which provides for the survival of actions, and (3) the degree of control the decedent has over the right to exercise distribution of the proceeds. Upon a finding that the decedent "passed" any interest to the beneficiaries, these...