Daubert v. United States
| Decision Date | 03 November 1981 |
| Docket Number | No. SA-76-CA-155.,SA-76-CA-155. |
| Citation | 533 F. Supp. 66 |
| Parties | Mary Constance DAUBERT and Charles Robert Daubert, Independent Executors of the Estate of Charles A. Daubert, Deceased, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Western District of Texas |
John R. Locke, Jr., Robert P. Thomas III, Groce, Locke & Hebdon, San Antonio, Tex., for plaintiffs.
Edward C. Prado, U. S. Atty., by Hugh P. Shovlin, Asst. U. S. Atty., San Antonio, Tex., William W. Guild, Atty. in Charge, Dept. of Justice, Tax Div., Dallas, Tex., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On October 27, 1981, trial was had before the Court in the above-styled and numbered cause. After considering the evidence and arguments of counsel, the Court now enters its Findings of Fact and Conclusions of Law pursuant to Rule 52(a), Federal Rules of Civil Procedure.
1. Plaintiffs, Mary Constance Daubert and Charles Robert Daubert, duly appointed and qualified independent executors of the Estate of Charles A. Daubert, Deceased, seek a refund of $11,572.56 of taxes on the Estate of Charles A. Daubert, Deceased, plus interest in the amount of $2,109.70, which they allege to have been overpaid to the Internal Revenue Service.
2. The issue in this case is whether the Decedent, Charles A. Daubert, transferred to his wife his community one-half property interest in a life insurance policy on his life, making the policy the separate property of his wife and thereby precluding the inclusion of one-half of the proceeds of the policy in his taxable estate pursuant to 26 U.S.C. § 2042(2) (1976).
3. Charles A. Daubert, Decedent, died on March 25, 1972. Plaintiffs, Mary Constance Daubert (Decedent's wife), and Charles Robert Daubert (Decedent's son) were duly appointed and qualified as Independent Executors of the Estate of Charles A. Daubert, Deceased, on April 24, 1972.
4. On December 12, 1972, Plaintiffs filed with the Internal Revenue Service an Estate Tax Return (Form 706) for the Estate of Charles A. Daubert, Deceased, showing a federal estate tax due in the amount of $46,236.47. They paid that amount of tax on December 12, 1972.
5. The Internal Revenue Service audited the Estate Tax Return and, having determined a deficiency, assessed on November 5, 1975, additional federal estate taxes in the amount of $11,572.56, plus interest in the amount of $2,109.70. Plaintiffs paid the $13,682.26 assessment on November 18, 1975.
6. The assessment of additional estate taxes was based upon a determination by the IRS that an insurance policy on the life of the Decedent, Charles A. Daubert, in the face amount of $75,000.00, Policy No. 3079841, issued in 1958 by the Massachusetts Mutual Life Insurance Company, was the community property of the Decedent and his wife. Therefore, one-half of the proceeds from the policy were includable in the gross estate of the Decedent for purposes of federal estate taxation pursuant to 26 U.S.C. § 2042(2).
7. Constance Krause Daubert, who is one and the same person as the Plaintiff, Mary Constance Daubert, signed the application for the insurance policy as the "Purchaser." The Decedent, Charles A. Daubert, signed the application as the "Proposed Insured." The application was signed October 31, 1958, and was filed with the Massachusetts Mutual Life Insurance Company on or about November 5, 1958. (Exhibit P-1).
8. The application was filled in by Edward Hall, the agent who sold the policy to the Dauberts. Item 9 of the application designated Decedent's wife, Mary Constance Daubert, as the beneficiary, if living, otherwise to the Estate of Mary Constance Daubert. Item 10 of the application, entitled "Owner", provided one box labeled "Proposed Insured" for designating the proposed insured as the owner, and a second box with a blank space and the following parenthetical instruction: "If other than Proposed Insured, print full name and relation to Proposed Insured." The owner was designated as Mary Constance Daubert1, wife of the Insured, or her legal representatives. Item 10 further stated, below the blank space, "the right to change and successively change to any beneficiary, during the lifetime of the insured, subject to the consent of the Company, is reserved to the owner." The application further provided, directly above the signature of Mary Constance Daubert as "Purchaser" the following language:
(Exhibit P-1).
9. Pursuant to the application, the Massachusetts Mutual Life Insurance Company issued a life insurance policy in the face amount of $75,000.00, Policy No. 3079841, on the life of the Decedent, Charles A. Daubert.
10. The policy, effective August 25, 1958, designated Charles A. Daubert as the Insured. The policy designated as the Owner Mary Constance Daubert, or her legal representatives. The policy designated as the beneficiary Mary Constance Daubert, "the Insured's wife, if living at the death of the Insured; otherwise the executors or administrators of the said" Mary Constance Daubert. (Exhibit P-2).
11. The ownership designation of the policy, as supplied to the insurance company on the application, did not change from the date of its issuance until the date of the death of the Insured.
12. All premiums on the life insurance policy were paid out of community funds. (Exhibit D-A, Answers of the Plaintiffs, Interrogatory No. 2).
13. Although Mary Constance Daubert executed the application on the signature line designated Purchaser, the Decedent selected the options and elections, including an automatic premium loan provision (Exhibit P-1, Item 15), and the accumulation of dividends on the policy with a term insurance option (Exhibit P-1, Item 14). These elections produced in each year of the policy's life a policy loan that was substantially equal to the cash surrender value of the policy. One-year term insurance was purchased each year in an amount approximately equal to the amount of the policy loan. This utilization of the dividends from the policy required annual payments well below the stated premium of $4,150.50 per year and allowed a substantial portion of the net cash premium actually paid to the insurance company each year to become interest on the policy loan outstanding. The management of the policy through the above-described elections and through dividend payment options presented by the company at the beginning of each calendar year minimized the actual amount of cash premium paid each year and converted into a deductible interest expense a substantial amount of the cash paid.
14. All correspondence relating to the policy was directed to the business address of Charles A. Daubert at 542 Milam Building, San Antonio, Texas. All elections and all dividend payments were at the direction of the Decedent, even though the policy designated Mary Constance Daubert as the Owner. Until his death, the Decedent performed the actual management of the policy. (Exhibit D-B).
15. Although the application and the policy denominated Mary Constance Daubert as the Owner of the policy and although the Decedent purchased the policy simultaneously with a second policy naming his wife as the insured and himself as the Owner for the purpose of providing available cash upon the death of either spouse, the Decedent took no affirmative action during his lifetime showing his intent to make an irrevocable inter vivos gift of his community interest in the policy to his wife, or of his intent to make the policy the separate property of his wife. Rather, the policy was maintained at community expense, and was managed by the Decedent for the benefit of the community.
16. The Decedent, Charles A. Daubert, did not transfer to his wife his community one-half interest in the life insurance policy on his life, and the policy was not the separate property of his wife.
1. This Court has jurisdiction of this cause pursuant to 28 U.S.C. § 1346(a)(1).
2. Under Texas law, there is a strong presumption that property purchased with community funds is community property. Freedman v. United States, 382 F.2d 742 (5th Cir. 1967); Davis v. Prudential Insurance Company of America, 331 F.2d 346 (5th Cir. 1964); Commissioner v. Fleming, 155 F.2d 204 (5th Cir. 1946); Brown v. Lee, 371 S.W.2d 694 (Tex.1963). See also Magee v. Young, 145 Tex. 485, 198 S.W.2d 883 (1946); Brick & Tile, Inc. v. Parker, 143 Tex. 383, 186 S.W.2d 66 (1945).
3. Under Texas law, if a husband conveys real estate to his wife naming his wife as owner of the real property, it is presumed that the husband made a gift of the property to his wife, making the property her separate property. Prichard v. United States, 397 F.2d 60, 63 (5th Cir. 1968); McAdams v. Ogletree, 348 S.W.2d 75 (Tex. Civ.App.1961); Reed v. Reed, 283 S.W.2d 311 (Tex.Civ.App.1955). Plaintiffs concede that the presumption for real estate is not applicable to personal property.
4. Absent a showing that one spouse intended to transfer his community property interest to the other spouse, making a gift of his community interest in that property to the other spouse as her separate property, the Court will not presume a gift or transfer of the community property interest. Freedman v. United States, 382 F.2d 742 (5th Cir. 1967). See Patterson v. Metzing, 424 S.W.2d 225 (Tex.Civ.App. 1967).
5. In order to transfer a community one-half interest in proceeds from a life insurance policy, the purported donor must "perform an affirmative act which would clearly reflect an intention to make a gift of the community share." Freedman v. United States, 382 F.2d at 747....
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